Ranbaxy (RBXY IN) core business continued to be a let-down even though higher than expected sales from exclusivities in the US led to higher revenue and PAT growth. Adjusting to exclusivity, core business was flat versus 12% estimated growth. Core operating margin at 9.2% was lower than their estimate of 13%. Adj. core PAT at Rs1.24bn was also lower than the Rs2.1bn estimated. Though the management has hinted at FTF launch of Actos and Diovan in CY12, Edelweiss sees limited upside from these. Owing to valuations ahead of fundamentals, maintain ‘REDUCE’.

Lipitor sales surprise positively

Driven by higher than estimated sales from FTF products in the US (USD170mn vs estimated USD60mn) RBXY’s sales and PAT surprised positively. This also led to 54% and 107% growth in revenue and PAT (vs their estimate of 38% and 91%) respectively.

Base business: Muted performance continues

Base business growth was flat as against the estimated 12% due to the underperformance in multiple geographies (East EU and CIS -5%, Africa -10%, Romania -30% and LATAM -41%). While domestic formulation business showed some recovery (9% growth), it was still below the industry growth. Though base operating margins improved by 360bps YoY to 9.2% (down 380bps QoQ), it also fell below Edelweiss' estimate of 13%. Base PAT at ~Rs1.24bn was another mark to fall below their estimate.

Actos, Diovan launch to provide limited upside

The management is confident of monetizing Actos and Diovan (USD350mn; sole exclusivity) FTF opportunity in the US in CY12. Though monetization of these will keep momentum in the US business, Edelweiss, however, sees limited upside from these products.

Outlook: Upsides capped by valuations; Maintain ‘REDUCE’

Edelweiss highlights that a recovery in the base business will be key for the stock performance. Though they have seen some improvement in the base business, Edelweiss still believes that a greater recovery will be back ended given the increase in fixed.