9 May 2014
5QFY14 Results Update | Sector: Healthcare
Ranbaxy Labs
BSE SENSEX
22,994
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
S&P CNX
6,859
RBXY IN
422.9
505/254
-2/-1/-10
CMP: INR464
TP: INR580
Buy
M.Cap. (INR b) / (USD b) 197.1/3.3
Financials & Valuation (INR Billion)
Y/E MAR
Sales*
EBITDA*
Adj. PAT
Rep. EPS
Adj. EPS
EPS Gr. (%)
BV/Sh(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA
Div.Yld (%)
2014
133.8
10.9
3.9
-24.9
9.3
-53.8
69.2
-35.9
9.6
25.1
44.9
6.0
23.0
0.5
2015E 2016E
133.5 130.4
24.5
15.7
3.5
7.8
34.4
18.5
8.3
18.5
-11.3 123.7
97.7 110.5
35.2
16.7
22.8
12.8
70.8
31.6
50.6
4.3
18.8
1.2
22.6
3.8
13.9
1.2
*Estimates include upside from FTF
opportunities; FY14E figures are 15
months
Ranbaxy's (RBXY) 5QFY14 results were below estimates. Revenue was flat YoY at
INR24.7b (v/s est. INR27.3b), while EBITDA declined 7% YoY to INR1.5b (v/s est.
INR2.4b), with EBITDA margin at 6.1% (v/s est. 8.8%). Reported loss stood at
INR738m (v/s est. PAT of INR1.5b).
Revenue growth was impacted by lower-than-expected performance across key
geographies of the US, India OTC, CIS, APAC and Africa. Pertinently, there was a
69% decline in APIs business which in turn was impacted by discontinuation of
Dewas and Taonsa operations.
EBITDA margin fell 40bp YoY, impacted by higher fixed overheads and remediation
costs incurred despite the slowdown in sales.
RBXY has reported exceptional items of INR903m towards inventory write-off on
Taonsa ban, goodwill impairment and diminution of value in a subsidiary.
Adjusted for one-off items and forex impact, company reported PAT of INR136m
(v/s est. INR1b), compared to PAT of INR623m in the corresponding quarter.
Key concall takeaways:
RBXY has refrained from giving guidance for FY15 and will
share it in subsequent quarters. Merger with SUNP will need approval of 75%
majority of total shareholders. Post which Sebi will approve the deal. Existing
business is showing healthy underlying growth across key geographies and is
expected to recover, going forward.
Post 5QFY14 results, we have lowered FY15E/16E core EPS estimates by 6%/2% to
reflect lower base business profitability. Over FY14-19E, we build core margin
expansion of 780bp to 18% based on synergy benefits highlighted by SUNP. This
assumes sales CAGR of 12% over the same period. We get a DCF value of INR559
for core business of RBXY. We add to this INR21/share from Para IVs which gives
us an SOTP-based target price of INR580. We maintain
Buy.
Key risks to our
arguments are integration challenges faced by SUNP and prolonged issues with
the US FDA.
Alok Dalal(Alok.Dalal@MotilalOswal.com);+91
22 3982 5584
Hardick Bora(Hardick.Bora@MotilalOswal.com);+91
22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Ranbaxy Labs
Key takeaways from the call
Guidance:
The management has refrained from giving any guidance for FY15E
and will share in subsequent quarter.
On merger with SUNP:
Management indicated that they will need approval of
75% majority of total shareholders. Post which, SEBI will approve the deal.
Existing business
excluding Taonsa and Dewas APIs is showing healthy
underlying growth across key geographies and is expected to recover going
forward. Performance in Africa, Middle-east and certain APAC markets was
impacted due to lower tender business, which is expected to revive in coming
quarters.
India OTC
segment reported a YoY dip for the first time in more than 12
quarters. The management believes that its key brands Volini and Revital has
huge scope and expects revival in growth in the coming quarters.
Absorica:
Ranbaxy has gained 22% market share in Isotretinoin market. They do
not expect the volume of the market to grow, but are confident of gaining
market share from competitors.
Employee expenses:
Despite a sequential dip, are expected to increase going
forward.
ANDA filings:
The company has filed 10 ANDAs during the year in the solid oral
dosage space. However, the number of products pending approval was not
shared:
Exclusivities:
The management continues to maintain that they will retain the
exclusivities on all the key FTF opportunities of gDiovan, gNexium and gValcyte.
Tax expenses
for the quarter were higher due to higher tax outgo in some of its
profitable foreign subsidiaries.
Net debt
stands at USD832m, while
outstanding hedges
stand at USD568m
(down from USD665m last quarter). On an average, USD33m worth of hedges
are expiring every year.
9 May 2014
2

Ranbaxy Labs
Story in Charts
Quarterly sales trend
Core Sales (INR m)
11
Quarterly EBITDA trend
Core EBITDA (INR m)
12
6
10
2
Core EBITDA margin (%)
9
7
1,938
3Q
FY14
6
1,508
5Q
23,391 23,652 24,894 24,176 26,834 28,016 28,940 24,668
2Q
3Q
CY12
4Q
1Q
2Q
3Q
FY14
4Q
5Q
2,688
2Q
2,908 412
3Q
CY12
1,537
1Q
2,625
2Q
2,602
4Q
4Q
Source: Company
Source: Company
US sales: Bases sales impacted by regulatory issues
US generics (USD m)
FTF sales (USD m)
India business has been impacted by DPCO-2013
India formulations (INR m)
982
1049
1013
4405
4Q
950
4477
1Q
1034
4392
2Q
India OTC (INR m)
1127
1240
783
4753
5Q
169
85
2Q
65
90
3Q
CY12
46
90
4Q
15
95
1Q
5
133
2Q
5
121
3Q
FY14
5
142
4Q
124
5Q
4559
2Q
4780
3Q
CY12
4621
3Q
FY14
4554
4Q
Source: Company
Source: Company
Revenue mix (INR m)
Geography
India
Europe, CIS and Africa
Asia Pacific & Middle East
Latin America
USA
Canada
Total Dosage
API
Total Sales
5QFY14
5,536
8,166
1,116
552
7,697
737
23,804
557
24,361
1QFY14
5,427
8,605
1,156
503
5,956
936
22,583
1,815
% YoY
2.0
-5.1
-3.5
9.7
29.2
-21.3
5.4
-69.3
Key comments
24,398
-0.2
Source: Company
Overall sales were impacted by discontinuation of
API business at Taonsa and Dewas.
Revenue growth was impacted by lower than
expected performance across key geographies of US,
India OTC, CIS, APAC and Africa.
OTC business posted a YoY decline first time in more
than 12 quarters.
EBITDA margins were impacted to higher fixed
overheads and remediation costs
9 May 2014
3

Ranbaxy Labs
Story in Charts
Steady core sales driven by growth across geographies
Core sales (INR m)
US base business to revive aided by new launches
Base business (USD m)*
One-offs (USD m)*
594
406
163
230
CY09
CY10
CY11
CY12
FY14
FY15E
FY16E
CY09
307
246
CY10
306
CY11
350
CY12
30
614
307
527
661
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
India business to grow steadily; in line with market
India formulations (INR m)
India OTC (INR m)
Profitability to improve with increasing scale
Core EBITDA (INR m)*
Core EBITDA margin (%)*
5134
2485
15108
3110
16044
3733
22797
5021
6025
9.4
10.8
7.9
10.3
7.7
10.1
12.0
2129
14171
17928
20152
22167
CY09
CY10
CY11
CY12
FY14
FY15E
FY16E
CY09
CY10
CY11
CY12
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
RBXY’s SGA expenses highest among peers
Ranbaxy
Lupin
Torrent Pharma
Sun Pharma
Glenmark Pharma
Core earnings to grow on a small base
Core EPS (INR)
19.3
11.2
3.8
20.2
18.5
9.3
8.3
40.0
35.0
30.0
25.0
20.0
CY09
CY10
CY11
CY12
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
9 May 2014
4

Ranbaxy Labs
Valuation and view
Over FY14-FY19, we build in core margin expansion of 780bp to 18% based on
synergy benefits highlighted by SUNP.
This assumes sales CAGR of 12% over the same period. We get a DCF value of
INR559 for core business of RBXY.
We add to this INR 21/share as value from Para IV opportunities which gives us
a SoTP based TP of INR580.
We maintain
Buy.
Key risks to our arguments are integration challenges faced by
SUNP and prolonged issues with US FDA.
RBXY: Financial Snapshot & valuation methodology
Particulars
Core sales
YoY growth (%)
Core EBITDA
Margin (%)
Core PAT
YoY growth (%)
Target multiple for teminal value
Terminal value
Discount factor for 3 years @15%
DCF value of base business
Per share value of base business
DCF value of FTFs
Total intrinsic value for RBXY
FY15E
115,113
-13.2
11,608
10.1
3,496
-11.3
Ranbaxy
FY16E
FY17E
130,394
146,042
13.3
12.0
15,709
20,446
12.0
14.0
7,820
11,441
123.7
46.3
FY18E
163,567
12.0
26,171
16.0
15,622
36.5
FY19E
183,195
12.0
32,975
18.0
20,688
32.4
20
413,765
0.5718
236,572
559
21
580
Source: Company, MOSL
9 May 2014
5

Ranbaxy Labs
Ranbaxy Labs: an investment profile
Company description
Ranbaxy is a leading global generic company with global
revenues of over US$2b. The company has established a
direct presence across the world in key markets like US,
UK, Germany, France and Brazil. Around 40% of its
revenues come from the developed markets of the US
and Europe while emerging markets contributes about
55% of revenues. The company's fully integrated
operations give it a cost advantage, which along with its
aggressive foray into lucrative markets places it several
notches above its peers in India.
Delay in improving the profitability of the base
business and forfeiture of 3 FTF resulting in large
loss of profits.
Recent developments
Taonsa API unit banned by the US FDA
Valuation and view
Ranbaxy is valued at 50.6x FY15E and 22.6x FY16E
core EPS. Our DCF value of all potential Para-IV
upsides is INR21/share.
Maintain Buy with TP of INR580.
Key investment arguments
One of the largest generic pipeline, coupled with a
wide product basket and presence across different
geographies, to ensure sustained growth, despite
growing competition.
Strong distribution presence in key global markets
and fully-integrated operations make it well placed
to ride the generics wave.
Monetization of FTF opportunities should augur
well.
Sector view
Differentiated portfolio in regulated markets and
emerging markets would remain the key sale and
profit drivers in the medium term. Japan is expected
to emerge as the next growth driver.
We are overweight on companies that offer a
pragmatic mix of normal, low-competition and
patent challenge opportunities in the US and
presence in key emerging markets.
Key investment risks
Stiff competition from other Indian players and
aggressive counter strategies by innovator
companies will continue in the foreseeable future.
EPS: MOSL forecast v/s consensus (INR)
Ranbaxy
50.6
22.6
4.3
3.8
1.8
1.8
18.8
13.9
DRL
18.8
16.8
4.0
3.3
3.0
2.6
12.2
10.6
Cipla
18.8
15.8
2.6
2.3
2.8
2.4
12.3
10.6
MOSL
Forecast
FY14
FY15
34.4
18.5
Consensus
Forecast
26.3
17.6
Variation
(%)
30.7
5.1
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY15E
FY16E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Target price and recommendation
Current
Price (INR)
464
Target
Price (INR)
580
Upside
(%)
25
Reco.
Buy
Shareholding pattern (%)
Mar-14
Promoter
Domestic Inst
Foreign
Others
63.4
8.3
14.1
14.2
Dec-13
63.4
8.8
13.2
14.6
Mar-13
63.5
10.0
13.3
13.2
Stock performance (1-year)
9 May 2014
6

Ranbaxy Labs
Financials and valuation
9 May 2014
7

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RANBAXY LABORATORIES LTD
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Ranbaxy Labs
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