With Ranbaxy rallying post the USFDA approval for Diovan generic, a USD 3.4 billion opportunity for the company, Sarabjit Kaur Nangra of Angel Broking sees the Diovan generic approval via Ohm Laboratories a positive for both, Sun Pharma as well as Ranbaxy.
The Nexium Generic is a bigger opportunity for Ranbaxy than Valcyte generic, she says in an interview with CNBC-TV18's Ekta Batra.
Given the Sun-Ranbaxy merger, Nangra sees an upside potential of 8-10 percent in Ranbaxy.
Also read: USFDA boost for Ranbaxy; see akin deal for Nexium: Dandekar
Below is the edited transcript of the interview:
Q: It is Sun Pharmaceutical Industries which is rallying so I just want to ask you about what sort of upside a consolidated profit and loss statement and balance sheet would this bring to Sun Pharma as well as Ranbaxy Laboratories, based on the fact that the merger will goes through without any problems?
A: This is definitely positive in terms of Ranbaxy, so it boosts the profitability of Sun Pharma consequently going forward. More than this opportunity which will materialise this year, if series of such opportunities keep on materialising for Ranbaxy and it comes out of the problems in terms of the US Food and Drug Administration (USFDA) or longer term, that will be major boost for Sun Pharma. So, this news is positive in that direction but we will be monitoring those milestones to say that this will be not that dilutive in terms of profitability for Sun Pharma after the merger.
Q: How much more confident are you that Ranbaxy will now we able to monetise Valcyte generic as well as Nexium generic and between the two, which one is the more lucrative opportunity that you will be looking out for closely?
A: As of now, this is done through Ohm Laboratories and with Toansa and other facilities under scrutiny; these opportunities will definitely come but will take some time to get monetised. In terms of the bigger one, Nexium proves to be a much bigger opportunity for Ranbaxy going forward.
Q: I wanted to ask you about the third party supplier – it is suppose to be Divis Laboratories which is the third party supplier, the active pharmaceutical ingredients (API) supplier. Would you have a view on Divis Labs and how much of an opportunity it could be for them?
A: Normally APIs for a pharma company would constitute as the cost of production level is around 50 percent. I do not track Divis but in case they are the supplier then given the size, it makes good contribution for the company for the year.
Q: What is your rating on both the stocks?
A: I do not cover Divis so it is an unrated stock for me. As far Ranbaxy is concerned, we believe given the merger, it has an upside potential of 8-10 percent.
Q: And Sun Pharma?
A: Accumulate Sun Pharma, it has risen up significantly and target is around Rs 706 as of now.
Ranbaxy Labs stock price
On June 16, 2014, Ranbaxy Laboratories closed at Rs 478.55, up Rs 13.90, or 2.99 percent. The 52-week high of the share was Rs 505.00 and the 52-week low was Rs 253.95.
The latest book value of the company is Rs 3.41 per share. At current value, the price-to-book value of the company was 140.34.
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