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Ranbaxy: Exclusivity products give a boost
Feb 22, 2011

Ranbaxy has announced its CY10 results. The company has reported 18% YoY and 459% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 18% YoY during the year primarily led by the US and emerging markets.
  • Operating margins expand substantially by 12.8% due to reduction in all costs (as percentage of sales).
  • Bottomline grows by an impressive 459% YoY largely due to the impact of forex gains and extraordinary income. On excluding the same, the company reports a profit of Rs 11 bn as against a loss of Rs 2 bn in CY09.
  • The Board recommends a dividend of Rs 2 per share (dividend yield of 0.4%).

(Rs m) CY09 CY10 Change
Net sales   75,970   89,608 18.0%
Expenditure   70,129   71,219 1.6%
Operating profit (EBDITA)     5,842   18,389 214.8%
EBDITA margin (%) 7.7% 20.5%  
Other income     2,402     2,795 16.3%
Interest (net)        710        614 -13.6%
Depreciation     2,676     3,717 38.9%
Profit before tax     4,857   16,853 246.9%
Tax     6,991     5,849 -16.3%
Forex gain     1,493     1,407 -5.8%
Exceptional items     3,747     4,958 32.3%
Profit after tax/(loss)     3,107   17,368 459.1%
Net profit margin (%) 4.1% 19.4%  
No. of shares (m)     420.4     420.8  
Diluted earnings per share (Rs)*         26.2  
P/E ratio (x)         18.7  
* excluding extraordinary items & forex gains

What has drive performance in CY10?
  • Ranbaxy's revenues grew by 18% YoY and were led by the strong performance of the US business and the emerging markets. The US business recorded sales growth of around 80% YoY. Growth was robust possibly on account of ‘Valacyclovir' which continued to enjoy a healthy market share even after loss of exclusivity. Not just that, the company launched its FTF product ‘Donepezil Hydrochloride' in the strengths of 5 mg and 10 mg with 180 days exclusivity in the fourth quarter of the year.

  • With respect to its issues with the US FDA, while the company has formally invited the US FDA to inspect its Dewas plant, issues with respect to the Poanta Sahib plant could take some more time to resolve as the corrective action plan at that plant is still underway.

  • Revenues from Europe grew by a mere 1% YoY largely due to competitive pressures. Revenues from the domestic market (including global consumer healthcare) grew by 8% YoY during the year. Of this, the Global Consumer Healthcare business recorded a growth of 17% YoY led by all key brands in the portfolio.

  • Other emerging markets did well during the year and accounted for around 50% of total sales. Sales from Russia and CIS grew by 18% YoY, while Africa recorded a 23% YoY growth in sales. The Latin American business grew by 17% YoY during the year.

  • Operating margins improved substantially by 12.8% due to reduction in all costs (as percentage of sales). Raw material costs especially declined from 42% of sales in CY09 to 35% of sales in CY10 largely on account of the 180 day exclusivity products which enjoy higher gross margins. Bottomline grew by an impressive 459% YoY primarily due to the impact of forex gains and extraordinary income. On excluding the same, the company reported a profit of Rs 11 bn during this year as against a loss of Rs 2 bn in CY09.

What to expect?
At the current price of Rs 489, the stock is trading at a price to earnings multiple of 20.3 times our estimated CY12 earnings. As far as the US FDA issues are concerned, while the company has formally requested the US FDA to re-inspect its plant at Dewas, issues at the Poanta Sahib plant could take more time to resolve as the corrective action plan is still underway. The company is confident of capitalising on FTF opportunities for products Flomax, Lipitor and Nexium, for which Ranbaxy has entered into out-of-court settlements. That said, with respect to these launches, an element of uncertainty cannot be discounted given its pending problems with the US regulator. While we had included revenues from Valtrex in our estimates, we have not included those from ‘Flomax' and Lipitor'.

Meanwhile, the branded and emerging markets will continue to play a significant role in offsetting the difficult conditions in the developed markets. Going forward, solving the issues with the US FDA will be the key in getting the company's growth back on track. Although the sales performance has been more or less in line with our estimates, the company has performed better than our estimates on the profitability front. Hence, we will have to upgrade our numbers accordingly for the full year. We shall soon update our research report on the company.

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