Ranbaxy Surges by Record as UBS to Kotak Boost Recommendation

Ranbaxy Laboratories Ltd., India’s biggest drugmaker, surged by an unprecedented 35 percent after brokerages including UBS AG and Kotak Securities Ltd. raised their ratings on signs that U.S. sales were improving.

Shares of the Gurgaon, India-based company advanced 28 percent to 359.2 rupees at close of trading in Mumbai after jumping as much as 99 rupees. The benchmark S&P BSE Sensex index rose 0.7 percent. Ranbaxy yesterday reported a profit of 1.35 billion rupees ($22 million) excluding foreign-exchange related losses and exceptional items, according to a statement.

UBS, Edelweiss Securities Ltd., Kotak and nine other brokerages raised their recommendation on the stock citing improving sales outlook at the company’s operations in North America, where it has been struggling with charges over the safety of its drugs. Rising demand for Absorica, an acne medication, and a proposed introduction of a generic version of hypertension drug Diovan this year, may boost profits, Perin Ali, an analyst at Edelweiss wrote in a report today.

“A bounce back was expected especially since the base business still looks lucrative,” said Vivek Kumar, a Mumbai-based analyst at SBI Capital Markets Ltd. “The stock was beaten down a lot in the last couple of months.”

Today’s record jump pares Ranbaxy’s loss for the year to 29 percent. The stock is still “underheld” by money managers, according to Kumar who rated Ranbaxy a “good” buy with a target price of 450 rupees a share in his report.

Turnaround Signs

Ranbaxy spokesman Gaurav Chugh declined to comment on the stock price jump. The company plans to invest $35 million in setting up its second drug manufacturing plant in Malaysia, according to exchange filings.

“There are initial signs of turnaround with improving sustainability in U.S. earnings,” Krishna Prasad, an analyst at Kotak said in a report today, raising his recommendation to buy from reduce. There’s also an “increasing visibility of the U.S. pipeline” and peaking out of expenses the drugmaker incurred in remedying quality issues raised by the U.S. regulator, he wrote.

Revenue at its North American operations rose 24 percent to 8.5 billion rupees from the preceding quarter, according to brokerage IIFL Ltd.

Losses of 3.67 billion rupees arising from a weak rupee and goodwill impairment for its operations in France resulted in a net loss of 5.24 billion rupees in the quarter ended June from a year ago, Ranbaxy said in the statement. That compared with the median profit estimate of 1.29 billion rupees.

India’s currency has slid 10 percent this year against the dollar and is the worst-performing currency in Asia after Japan.

“There has been a significant improvement in our core businesses if you remove exceptional items,” Arun Sawhney, Ranbaxy’s chief executive officer told analysts yesterday. “We are looking at drug alliances to develop products besides what we have in-house. I expect more filings to come through from these alliances.”

The company controlled by Daiichi Sankyo Co. admitted it sold batches of drugs improperly manufactured, stored and tested in the U.S. and agreed to pay $500 million to settle the allegations made in the whistle-blower’s lawsuit.

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