Ranbaxy Labs
Turning around; maintain Buy
 Q3CY10 results. Ranbaxy reported 2.1% yoy revenue growth in
line with our estimates. Though the 9% EBITDA margin declined
290bp yoy, it has been improving qoq for the past three quarters.
On lower EBITDA margin and higher depreciation charge,
adjusted net profit slid 14.8% yoy. However, at `308m, reported
net profit was higher on forex gain of `2.6bn.

 US and India: key drivers. The US business grew 85% yoy
mainly on account of ~36% market share in Valacyclovir, postexpiry.
US revenue (excl. para IV) is stabilising at >US$80m per
quarter. Indian formulations grew 18% yoy led by industry growth
and start of contribution from the Viraat project.

 Highlights. EBITDA margin of 9% without any para IV upside
indicates benefits accruing from cost-reduction measures taken.
The margin is expected to further improve on rising contribution
from the Viraat project and the stabilising US business.

 Outlook. We are bullish on the growth outlook and margin
expansion (15.3% in CY12e). Management is confident of
monetising all the para IV opportunities despite ongoing USFDA
issues. Commercial supply of Nexium API has started in Q4CY10;
this would be the key growth driver in future.

 Valuation and risks. At CMP, Ranbaxy trades at 17.8x CY10e
and 16.9x CY11e earnings. We retain our target price of `658 and
re-iterate Buy. Risks: Failure in monetising para IV opportunities.