Ranbaxy to suffer operating losses post USFDA ban: Surajit Pal, Prabhudas Lilladher

In an interview with ET Now, Surajit Pal, AVP-Pharma, Prabhudas Lilladher, shares his views on Ranbaxy. Excerpts:


ET Now: I am sure that you must have done your numbers on the actual EPS damage to Ranbaxy, because of this latest USFDA ban?

Surajit Pal: See, this would be too early to get into, at this point of time, but what can I tell you for sure is that the company has been currently getting $120 to $130 million of revenue per quarter from the US, mainly from Ohm Labs. Now for the Ohm Labs to manufacture formulations, around 70% of the supplies came from the Toansa API plant. So that business would be impacted.

Therefore, in this kind of tough scenario, a company generally would want to save on the sales front. Now, if they go for saving their sales, then they would have to outsource API, which means that there will be additional cost pressure on the operating level. Also, there will be additional consultancy cost too. All in all, this company will suffer from operating losses.

Moreover, they have only two profit making markets -- the US and India. India is where it remains, but the US has been one of the big contributors in their profits and that would be going down the drain.

ET Now: So can Ranbaxy not export to the US at all, because if they do not have an API-approved facility, what will they export?

Surajit Pal: Yes, they can manufacture. The Ohm Labs is still approved. So they can manufacture formulations and sell them in the US. So they can outsource API to a third party, who has already USFDA approval for those API.

ET Now: So what is it that you are expecting on the stock? We have seen a downtick. Do you expect a significant de-rating now to trickle in?

Surajit Pal: This has been the worst that I could expect. If the USFDA does not withdraw the FDA status for Ranbaxy on its three Para IV drugs, that is Valcyte, Diovan and Nexium, then Ranbaxy has no other option but to outsource API, which means that their EPS estimation of Rs 80 will be less than half.

Thirdly, in this scenario, people will not discount even the earnings estimation from FDA, because it may be withdrawn. So the bias on the stock will be anything between Rs 200 and Rs 250 and I am expecting a downgrade in price.