Ranbaxy's 5QFY14 results were below estimates. Revenue was flat YoY at INR24.7b, while EBITDA declined 7% YoY to INR1.5b, with EBITDA margin at 6.1%. Reported loss stood at INR738m

1. 9 May 2014
5QFY14 Results Update | Sector: Healthcare
Ranbaxy Labs
Alok Dalal(Alok.Dalal@MotilalOswal.com);+91 22 3982 5584
Hardick Bora(Hardick.Bora@MotilalOswal.com);+91 22 3982 5423
BSE SENSEX S&P CNX
CMP: INR464 TP: INR580 Buy22,994 6,859
Bloomberg RBXY IN
Equity Shares (m) 422.9
M.Cap. (INR b) / (USD b) 197.1/3.3
52-Week Range (INR) 505/254
1, 6, 12 Rel.Per (%) -2/-1/-10
Financials & Valuation (INR Billion)
Y/E MAR 2014 2015E 2016E
Sales* 133.8 133.5 130.4
EBITDA* 10.9 24.5 15.7
Adj. PAT 3.9 3.5 7.8
Rep. EPS -24.9 34.4 18.5
Adj. EPS 9.3 8.3 18.5
EPS Gr. (%) -53.8 -11.3 123.7
BV/Sh(INR) 69.2 97.7 110.5
RoE (%) -35.9 35.2 16.7
RoCE (%) 9.6 22.8 12.8
Payout (%) 25.1 70.8 31.6
Valuations
P/E (x) 44.9 50.6 22.6
P/BV (x) 6.0 4.3 3.8
EV/EBITDA 23.0 18.8 13.9
Div.Yld (%) 0.5 1.2 1.2
*Estimates include upside from FTF
opportunities; FY14E figures are 15
months
 Ranbaxy's (RBXY) 5QFY14 results were below estimates. Revenue was flat YoY at
INR24.7b (v/s est. INR27.3b), while EBITDA declined 7% YoY to INR1.5b (v/s est.
INR2.4b), with EBITDA margin at 6.1% (v/s est. 8.8%). Reported loss stood at
INR738m (v/s est. PAT of INR1.5b).
 Revenue growth was impacted by lower-than-expected performance across key
geographies of the US, India OTC, CIS, APAC and Africa. Pertinently, there was a
69% decline in APIs business which in turn was impacted by discontinuation of
Dewas and Taonsa operations.
 EBITDA margin fell 40bp YoY, impacted by higher fixed overheads and remediation
costs incurred despite the slowdown in sales.
 RBXY has reported exceptional items of INR903m towards inventory write-off on
Taonsa ban, goodwill impairment and diminution of value in a subsidiary.
 Adjusted for one-off items and forex impact, company reported PAT of INR136m
(v/s est. INR1b), compared to PAT of INR623m in the corresponding quarter.
 Key concall takeaways: RBXY has refrained from giving guidance for FY15 and will
share it in subsequent quarters. Merger with SUNP will need approval of 75%
majority of total shareholders. Post which Sebi will approve the deal. Existing
business is showing healthy underlying growth across key geographies and is
expected to recover, going forward.
 Post 5QFY14 results, we have lowered FY15E/16E core EPS estimates by 6%/2% to
reflect lower base business profitability. Over FY14-19E, we build core margin
expansion of 780bp to 18% based on synergy benefits highlighted by SUNP. This
assumes sales CAGR of 12% over the same period. We get a DCF value of INR559
for core business of RBXY. We add to this INR21/share from Para IVs which gives
us an SOTP-based target price of INR580. We maintain Buy. Key risks to our
arguments are integration challenges faced by SUNP and prolonged issues with
the US FDA.
Investors are advised to refer through disclosures made at the end of the Research Report.

2. 9 May 2014 2
Ranbaxy Labs
Key takeaways from the call
 Guidance: The management has refrained from giving any guidance for FY15E
and will share in subsequent quarter.
 On merger with SUNP: Management indicated that they will need approval of
75% majority of total shareholders. Post which, SEBI will approve the deal.
 Existing business excluding Taonsa and Dewas APIs is showing healthy
underlying growth across key geographies and is expected to recover going
forward. Performance in Africa, Middle-east and certain APAC markets was
impacted due to lower tender business, which is expected to revive in coming
quarters.
 India OTC segment reported a YoY dip for the first time in more than 12
quarters. The management believes that its key brands Volini and Revital has
huge scope and expects revival in growth in the coming quarters.
 Absorica: Ranbaxy has gained 22% market share in Isotretinoin market. They do
not expect the volume of the market to grow, but are confident of gaining
market share from competitors.
 Employee expenses: Despite a sequential dip, are expected to increase going
forward.
 ANDA filings: The company has filed 10 ANDAs during the year in the solid oral
dosage space. However, the number of products pending approval was not
shared:
 Exclusivities: The management continues to maintain that they will retain the
exclusivities on all the key FTF opportunities of gDiovan, gNexium and gValcyte.
 Tax expenses for the quarter were higher due to higher tax outgo in some of its
profitable foreign subsidiaries.
 Net debt stands at USD832m, while outstanding hedges stand at USD568m
(down from USD665m last quarter). On an average, USD33m worth of hedges
are expiring every year.

3. 9 May 2014 3
Ranbaxy Labs
Story in Charts
Quarterly sales trend
Source: Company
Quarterly EBITDA trend
Source: Company
US sales: Bases sales impacted by regulatory issues
Source: Company
India business has been impacted by DPCO-2013
Source: Company
Revenue mix (INR m)
Geography 5QFY14 1QFY14 % YoY
India 5,536 5,427 2.0
Europe, CIS and Africa 8,166 8,605 -5.1
Asia Pacific & Middle East 1,116 1,156 -3.5
Latin America 552 503 9.7
USA 7,697 5,956 29.2
Canada 737 936 -21.3
Total Dosage 23,804 22,583 5.4
API 557 1,815 -69.3
Total Sales 24,361 24,398 -0.2
Source: Company
Key comments
 Overall sales were impacted by discontinuation of
API business at Taonsa and Dewas.
 Revenue growth was impacted by lower than
expected performance across key geographies of US,
India OTC, CIS, APAC and Africa.
 OTC business posted a YoY decline first time in more
than 12 quarters.
 EBITDA margins were impacted to higher fixed
overheads and remediation costs
23,391 23,652 24,894 24,176 26,834 28,016 28,940 24,668
2Q 3Q 4Q 1Q 2Q 3Q 4Q 5Q
CY12 FY14
Core Sales (INR m)
2,688 2,908 412 1,537 2,625 1,938 2,602 1,508
11 12
2
6
10
7
9
6
2Q 3Q 4Q 1Q 2Q 3Q 4Q 5Q
CY12 FY14
Core EBITDA (INR m) Core EBITDA margin(%)
85 90 90 95 133 121 142 124
169
65 46 15
5 5 5
2Q 3Q 4Q 1Q 2Q 3Q 4Q 5Q
CY12 FY14
US generics (USDm) FTF sales (USDm)
4559 4780 4405 4477 4392 4621 4554 4753
982 1049 1013 950 1034 1127 1240 783
2Q 3Q 4Q 1Q 2Q 3Q 4Q 5Q
CY12 FY14
India formulations (INR m) India OTC (INR m)

4. 9 May 2014 4
Ranbaxy Labs
Story in Charts
Steady core sales driven by growth across geographies
Source: Company, MOSL
US base business to revive aided by new launches
Source: Company, MOSL
India business to grow steadily; in line with market
Source: Company, MOSL
Profitability to improve with increasing scale
Source: Company, MOSL
RBXY’s SGA expenses highest among peers
Source: Company, MOSL
Core earnings to grow on a small base
Source: Company, MOSL
68386
75824
80897
93612
132082
114808
130394
CY09 CY10 CY11 CY12 FY14 FY15E FY16E
Core sales (INR m)
230 246 306 350
614 527
661163
307
406
594 30
307
CY09 CY10 CY11 CY12 FY14 FY15E FY16E
Base business (USD m)* One-offs (USD m)*
14171 15108 16044 17928
22797 20152 22167
2129 2485 3110
3733
5134
5021
6025
CY09 CY10 CY11 CY12 FY14 FY15E FY16E
India formulations (INR m) India OTC (INR m) 7,124
7,969
6,452
9,751
10,210
11,608
15,709
9.4
10.8
7.9
10.3
7.7
10.1
12.0
CY09 CY10 CY11 CY12 FY14 FY15E FY16E
Core EBITDA(INR m)* Core EBITDAmargin (%)*
20.0
25.0
30.0
35.0
40.0
CY06
CY07
CY08
CY09
CY10
CY11
CY12
FY14E
FY15E
FY16E
Ranbaxy Sun Pharma
Lupin Glenmark Pharma
Torrent Pharma
3.8
11.2
19.3 20.2
9.3 8.3
18.5
CY09 CY10 CY11 CY12 FY14 FY15E FY16E
Core EPS (INR)

5. 9 May 2014 5
Ranbaxy Labs
Valuation and view
 Over FY14-FY19, we build in core margin expansion of 780bp to 18% based on
synergy benefits highlighted by SUNP.
 This assumes sales CAGR of 12% over the same period. We get a DCF value of
INR559 for core business of RBXY.
 We add to this INR 21/share as value from Para IV opportunities which gives us
a SoTP based TP of INR580.
 We maintain Buy. Key risks to our arguments are integration challenges faced by
SUNP and prolonged issues with US FDA.
RBXY: Financial Snapshot & valuation methodology
Particulars Ranbaxy
FY15E FY16E FY17E FY18E FY19E
Core sales 115,113 130,394 146,042 163,567 183,195
YoY growth (%) -13.2 13.3 12.0 12.0 12.0
Core EBITDA 11,608 15,709 20,446 26,171 32,975
Margin (%) 10.1 12.0 14.0 16.0 18.0
Core PAT 3,496 7,820 11,441 15,622 20,688
YoY growth (%) -11.3 123.7 46.3 36.5 32.4
Target multiple for teminal value 20
Terminal value 413,765
Discount factor for 3 years @15% 0.5718
DCF value of base business 236,572
Per share value of base business 559
DCF value of FTFs 21
Total intrinsic value for RBXY 580
Source: Company, MOSL

6. 9 May 2014 6
Ranbaxy Labs
Ranbaxy Labs: an investment profile
Company description
Ranbaxy is a leading global generic company with global
revenues of over US$2b. The company has established a
direct presence across the world in key markets like US,
UK, Germany, France and Brazil. Around 40% of its
revenues come from the developed markets of the US
and Europe while emerging markets contributes about
55% of revenues. The company's fully integrated
operations give it a cost advantage, which along with its
aggressive foray into lucrative markets places it several
notches above its peers in India.
Key investment arguments
 One of the largest generic pipeline, coupled with a
wide product basket and presence across different
geographies, to ensure sustained growth, despite
growing competition.
 Strong distribution presence in key global markets
and fully-integrated operations make it well placed
to ride the generics wave.
 Monetization of FTF opportunities should augur
well.
Key investment risks
 Stiff competition from other Indian players and
aggressive counter strategies by innovator
companies will continue in the foreseeable future.
 Delay in improving the profitability of the base
business and forfeiture of 3 FTF resulting in large
loss of profits.
Recent developments
 Taonsa API unit banned by the US FDA
Valuation and view
 Ranbaxy is valued at 50.6x FY15E and 22.6x FY16E
core EPS. Our DCF value of all potential Para-IV
upsides is INR21/share.
 Maintain Buy with TP of INR580.
Sector view
 Differentiated portfolio in regulated markets and
emerging markets would remain the key sale and
profit drivers in the medium term. Japan is expected
to emerge as the next growth driver.
 We are overweight on companies that offer a
pragmatic mix of normal, low-competition and
patent challenge opportunities in the US and
presence in key emerging markets.
Comparative valuations
Ranbaxy DRL Cipla
P/E (x) FY15E 50.6 18.8 18.8
FY16E 22.6 16.8 15.8
P/BV (x) FY14E 4.3 4.0 2.6
FY15E 3.8 3.3 2.3
EV/Sales (x) FY14E 1.8 3.0 2.8
FY15E 1.8 2.6 2.4
EV/EBITDA (x) FY14E 18.8 12.2 12.3
FY15E 13.9 10.6 10.6
EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY14 34.4 26.3 30.7
FY15 18.5 17.6 5.1
Target price and recommendation
Current Target Upside Reco.
Price (INR) Price (INR) (%)
464 580 25 Buy
Shareholding pattern (%)
Mar-14 Dec-13 Mar-13
Promoter 63.4 63.4 63.5
Domestic Inst 8.3 8.8 10.0
Foreign 14.1 13.2 13.3
Others 14.2 14.6 13.2
Stock performance (1-year)

7. 9 May 2014 7
Ranbaxy Labs
Financials and valuation

8. 9 May 2014 8
Ranbaxy LabsDisclosures
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Disclosure of Interest Statement RANBAXY LABORATORIES LTD
1. Analyst ownership of the stock No
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