Nomura upgrades Ranbaxy to 'buy' on expectations of better margins

"The recent management interaction drives our upgrade," Nomura said, adding that the worst may be behind for the company's margins.

 

At 11.08 a.m., the stock was trading at Rs 411.25, up 2.07 per cent, after touching a high of Rs 412.25.

 

India's top drugmaker by sales, Ranbaxy in February said its base business would grow a modest 10 per cent in 2013 after reporting a surprise quarterly loss on product recall charges.

 

The company, controlled by Japan's Daiichi Sankyo, reported a quarterly net loss of Rs. 492 crore after setting aside Rs. 186 crore towards recall costs.

 

In November 2012, it voluntarily recalled its cholesterol lowering generic of Lipitor from the US market after it discovered contamination with tiny glass particles in certain lots of 10mg, 20mg and 40mg doses of the drug.

 

After the product recall, Ranbaxy's market share of generic Lipitor fell to less than 3 per cent, according to industry estimates. The drugmaker has now resumed supplying to the United States.

 

Ranbaxy launched the first generic version of Pfizer's Lipitor in 2011 and during its first six months on the market the company generated sales of nearly $600 million, according to analysts' estimates.

 

In late February, HSBC raised its rating on shares of Ranbaxy Laboratories to 'overweight' from 'underweight', after the company said it would resume production of Lipitor. HSBC also said that the other factors behind its upgrade were share valuations after a recent correction, as well as the near-term catalysts such as the launch of additional generic drugs and the probability of a recovery in US sales.

 

Global demand for cheaper generic medicines from companies like Ranbaxy and local rivals Dr Reddy's Laboratories, Cipla and Sun Pharmaceutical Industries is booming as developed nations battle rising healthcare costs.

 

The drugmakers, however, face intense competition as well as an increase in lawsuits from rival drugmakers and a stricter US regulatory environment.