Tuesday, September 13, 2011

Buy Ranbaxy with a target of INR 550


After the recent announcement by the management that they will be launching Atorvastatin generics as per expected timelines, the stock price seems to have not reacted enough.  Atorvastatin opportunity for Ranbaxy is being underplayed or the threat of a hefty fine by the USFDA is dominating investor sentiments. Ranbaxy has clearly stated that the fine is not going to be $1billion as speculated by the media, but would be lower.  It would be difficult to estimate the fine for anybody, as there are no precedence’s for this.  

However what we can certainly estimate is the opportunity from atorvastatin generics. There are primarily two reasons, why I think the magnitude of profits for Ranbaxy is going to be huge upto $1billion in profits

  1.  Atorvastatin unlike other blockbuster generics is going to be a low competition opportunity, as generic players cannot enter the market by Para III route, as the later expiring patents are still not invalidated. There are going to be only 3 or 4 players apart from the innovators for atleast a year after generics enter. Ranbaxy being the first to enter should be able to garner 30% of the market share on an average.
  2.  Besides Lipitor sales are expected to double post patent expiry, due to therapeutic substitution. Lipitor will take share from Zocor, Crestor and Vytorin. The market share is expected to reach 36%. 
Besides Atorvastatin genrics, once the Paonta sahib facility receives FDA nod, Ranbaxy will be able to reinstate exports of over more than 30 drugs to the US, which currently are banned.  I would recommend a buy on Ranbaxy with a target price of INR 550.