Muted performance, Maintain BUY with TP Rs792 Ranbaxy reported Q3CY10 results that were largely impacted through one-offs and forex. Net sales grew 10% underpinned by FTFs in the US and robust domestic formulation sales. Recurring EBITDA declined ~10% excluding inventory provisions and was below our expectations. However, higher other income and lower interest expense helped adjusted PAT (excluding net of forex) to grow 66% to Rs1.8bn. Management seems confident on US FDA resolution on Poanta Sahib and Dewas facilities. We remain sanguine on the resolution. We maintain BUY recommendation with TP of Rs792.

Strong domestic formulations, US growth on FTFs Domestic formulations contributed a fourth of revenue, growing a robust 22% on aggressive efforts owing to the launch of project Virrat that has ~1400 field force. We believe this growth momentum will continue. The US business gained on higher Valtrex sales (retain ~36% market share post exclusivity), although US base business faced pressure. Profitability impacted through one-offs and forex Inventory provisioning (~Rs500mn) and forex gain (Rs2.4bn) has impacted the overall reported earnings.

Recurring EBITDA margin stood at ~10% while recurring PAT grew by 66% to Rs1.8bn. Key conference call takeaways 1) Commercial supplies of Nexium API have begun in Q4CY10 while formulations will begin in the coming months, 2) Improvement in margins is expected, 3) Domestic formulations benefited through the additional 1400 field force, 4) Performance of South African market to be better by Q4CY10 while France will take two more quarters to revive, 5) Maintains earnings guidance.

VALUATIONS AND RECOMMENDATION We value the base business at 22xCY11e recurring EPS (ex FTFs). Our NPV for patent settlements stands at Rs150 per share. Accordingly, our 12-months SOTP based TP is Rs792.