In-line quarter, though core operating margins fell marginally short of estimates. Core operating margins (excluding other operating income of Rs 508mn and adjusting for the US$ 11mn provision related to Simvastatin recall earlier during the year) stands at 10.1%. India growth at 18% came as a positive surprise as benefits of the project Viraat, implemented last year, have started kicking in. Emerging markets like CIS, Latin America and Asia Pacific reported strong numbers. US sales of US$ 86mn include ~US$ 25mn from Valtrex (Ranbaxy was a FTF). Other operating income has a non-recurring component of Rs 250mn. Reported PAT of Rs 3bn includes forex gain of Rs 2.3bn.

Ranbaxy, on the earnings call, did not provide any specific timeline on US FDA resolution and the DoJ inquiry (the outgoing CEO, on the previous earnings call, had indicated that the company is a few months away from moving towards a substantial resolution). According to Ranbaxy, the dialogue process with the US FDA is moving in a positive direction and that it remains confident of monetizing all FTF opportunities, including Lipitor in Nov '11. The company also remained confident of improving core operating margins over the next few quarters. Ranbaxy filed 7 ANDAs this quarter, which is another positive.  Management believes India growth is sustainable at 18%.

We increase our CY10/CY11 earnings estimates upwards by 12%/7% on account of higher other operating income and lower tax outgo. Valuing the base business at 23x CY11E (Rs 417) and FTF opportunity at Rs 100/share, our revised price target is Rs 517. Our earnings estimate holds upside potential (non-recurring EPS of Rs 14/share) if Ranbaxy launches generic, Aricept, as a sole FTF player this month. Our bull-case price target (assuming sharp improvement in base business margins, timely resolution of pending US FDA and DoJ issues and timely monetization of all FTF) works out to be Rs 685.