Ranbaxy Trading Sell Target 400

Ø Ranbaxy cracked in trade today after details of the consent decree by US Justice Department were made public and turned out more stringent than expected. There is a comprehensive correction and audit roadmap, the decree also forfeits a 180-day marketing exclusivity for three of Ranbaxy's products.

Ø As per our system (both daily & weekly trend) and MACD Indicator stock has given a sell. Previously on two occasion when MACD cross below occurred, stock price also corrected.(see the chart attached)

Ø Fundamentally lot is at risk for Ranbaxy. The biggest hit in the near-term for Ranbaxy is the loss of 180-day marketing exclusivity for three of its products. There are other five opportunities that are also under threat, if the company doesn't submit proper details to USFDA within a stipulated timeframe.

Ø Besides that, in the next three months, the company also has to set out other product data compliances to the USFDA. If the company fails, they may also withdraw some of their potential ANDA filings from the US market.

Ø Given the issues also involved at the aforesaid facilities and the delay in entering consent decree with the USFDA we expect the clearance of the facilities to be long time driven and costly process (over and above the provision of USD 500mn made) which would impact the base operating margins of the company.

Ø Stock has also broken a long term triangle giving a lot of room for the downside.

Ø We suggest going short on Ranbaxy at cmp 448. With a stop loss at 475 with a target of 400 i.e. 11%.