>RANBAXY (MERRILL LYNCH)

■ Contingency plans to overcome FDA issues
The company is awaiting an FDA audit for the Dewas facility, and is confident of a clean result. However, corrective action is still being pursued at Paonta Sahib unit, and may take a while. The liquid injectables unit at Ohm, which also received a warning letter, is likely to shut down after resolution. The new unit at Mohali needs to obtain FDA approvals before starting supplies. In the interim, management seemed confident of being able to monetise opportunities through site transfer, e.g. Sumatriptan, Valtrex last year, Flomax in Q2 CY10, and blockbuster Lipitor (Q4 CY11).

■ Focus on growing top line, rationalising costs
Key drivers include (1) domestic (est 15%-plus CAGR), through new launches to plug product gaps, an expansion of the sales force (4,000 from present 2,500), and acquisitions (2) RoW, which include Latam (Brazil), Africa, CIS/Russia, and (3) Japan, leveraging Daiichi Sankyo's product and distribution capabilities (details in April 2010). In Europe, the company will focus on cost rationalisation, already showing up through the turnaround of operations.

■ Improving financials
Recent trends show gradual improvement in sales and margins. Management indicated further 200-300bps increase in EBITDA margins over 2-3 years.

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