We lift RBXY’s Sept-15 TP to INR 750, which is based on 0.8x SUNP’s Sept- 15 TP of INR 940. This factors in the completion of the Ranbaxy merger with Sun Pharma as per the disclosed share swap ratio. Each shareholder of Ranbaxy should receive 0.8 share of SUNP, according as per the company’s press release. Our TP implies an upside potential of ~15% from current levels vs. ~9% upside implied for Sun Pharma. We refer prefer Ranbaxy over Sun Pharma (Neutral, SUNP IN). RBXY’s H1CY14 business performance came in below our expectations RBXY’s H1CY14 growth in most of the export markets came lower than our expectation. Voluntary suspension of API manufacturing at Toansa and Dewas and formulation supplies from IPCA adversely affected near-term earnings. Growth revival in India is a bright spot for Ranbaxy. In line with the reporting change, we move to March ending projection for Ranbaxy. We reduce our base business EBITDA estimate for FY16F (vs. CY15 earlier) by 16%. Catalysts/Valuation Approval for the merger with SUNP, particularly from the Competition Commission of India and High courts, will be the key. Once approval is in place, we expect RBXY to trade at 0.8x SUNP’s TP of INR 940. Catalysts for Sun Pharma are also relevant to RBXY, in our opinion. Positive catalysts: Taro’s price increases are more than our current estimates; a negative catalyst is negative observations at Halol adversely impacting US projections for Sun Pharma.
Posted on: Fri, 23 Jan 2015 03:56:59 +0000
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