Nomura downgrades Ranbaxy to Reduce from Neutral earlier following import alert on Toansa plant.

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Ranbaxy’s API plant at Toansa has been placed under import alert by the USFDA. The action follows the inspection carried out by the agency in January 2014. The import alert at Toansa follows the alert imposed on a new formulation facility at Mohali in September 2013. The Toansa facility had earlier successfully concluded an FDA audit in 2011. The recent developments contradict the view that the regulatory issues are limited to the pre-2008 period and that the signing of a consent decree in January 2012 had laid the path for
gradual recovery. Toansa is an important API plant with 76% of DMF filings for Ranbaxy.

The target price has been cut to Rs311 from Rs436 earlier. Nomura estimates the stock can potentially drop to 1.4-1.5x EV/sales, in which case the price could drop to Rs250-270.