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Ranbaxy: The 'Lipitor' impact - Views on News from Equitymaster
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Ranbaxy: The 'Lipitor' impact
Feb 26, 2013

Ranbaxy has announced its 4QCY12 results. The company has reported 29% YoY decline in sales and a loss of Rs 4.9 bn at the net level. Here is our analysis of the results.

Performance summary
  • Net sales decline by 29% YoY during the quarter, due to Lipitor exclusivity in 4QCY11, which is not present this quarter. On like to like basis, the company registers double digit growth.
  • Operating margins decline drastically by 19% to 1.9% during the quarter due to the presence of high margin Lipitor during 4QCY11 and other exceptional expenses.
  • The company reports a loss of Rs 4.9 bn in 4QCY12 which is lower than the loss of Rs 29.8 bn reported in 4QCY11 due to lower exceptional losses this quarter.

Financial performance: A snapshot
(Rs m) 4QCY11 4QCY12 Change CY11 CY12 Change
Net sales 37,520 26,708 -28.8% 99,700 122,528 22.9%
Operating Income 742 404 -45.5% 2,595 2,068 -20.3%
Expenditure 30,278 26,584 -12.2% 86,281 106,370 23.3%
Operating profit (EBDITA) 7,983 528 -93.4% 16,013 18,226 13.8%
EBDITA margin (%) 20.9% 1.9%   15.7% 14.6%  
Other income 432 738 70.7% 1,444 2,732 89.2%
Interest (net) 909 1,356 49.2% 3,064 3,036 -0.9%
Depreciation 1,681 805 -52.1% 3,940 3,202 -18.7%
Exceptioan gain/(loss) (34,859) (3,659) -89.5% 37,318) (2,271) -93.9%
Profit before tax (29,034) (4,554) -84.3% 26,865) 12,449 -146.3%
Tax 747 340 -54.4% 1,969 2,939 49.3%
Minority Interest 46 30   163 282  
Profit after tax/(loss) (29,827) (4,924) -83.5% 28,997) 9,228 -131.8%
Net profit margin (%) -79.5% -18.4%   -29.1% 7.5%  
No. of shares (m)         421.0  
Diluted base earnings per share (Rs)         22.0  
Price to earnings ratio (x)*         19.5  
*based on trailing 12 months earnings

What has driven performance in 4QCY12?
  • Net sales declined by 29% YoY during the quarter, due to Lipitor exclusivity in 4QCY11, which was not there this quarter. On a like to like basis, the company registered growth of 10% for the quarter. For CY13, the company has given topline guidance of above Rs 120 bn with 10% growth in its base business.

    Consolidated business snapshot
    ($ mn) 4QCY11 4QCY12 Change CY11 CY12 Change
    USA 388 139 -64.2% 722 946 31.0%
    Canada 19 21 10.5% 71 68 -4.2%
    Europe 73 70 -4.1% 297 285 -4.0%
    Africa 49 49 0.0% 189 177 -6.3%
    CIS Latam 41 53 29.3% 170 184 8.4%
    Asia Middle East - exclud India 28 25 -10.7% 111 107 -3.9%
    India (include OTC and Sri Lanka) 77 81 5.2% 346 335 -3.0%
    OTC 18 18 0.0% 67 70 4.8%
    API 43 41 -4.7% 144 138 -4.2%
    Total Income from operations 736 497 -32.5% 2,116 2,310 9.1%

  • Domestic business (includes consumer health and Sri-Lanka and OTC segment) grew 12% in dollar terms. This growth was largely supported by the OTC segment.

  • Revenues from the US segment declined by 64% YoY, largely on the back of 180-days exclusivity for Lipitor and Caduet generics during 4QCY11. Revenues were further impacted by recall of generic Lipitor. Currently, the company has 30% market share in Actos (this product has 180-days exclusivity). Absorica which was launched during 4QCY12, is also gaining traction. This is an anti acne product and was launched along with its partner Cipher. The company remained confident of retaining 180-days exclusivity for Diovan. Ranbaxy has guided for launch of 3-4 Para IVs during CY13. Over and above this, the company has filed 5 Para IVs (FTFs) having market size of US$4.5 bn.

  • Europe segment declined by 4% for 4QCY12. The West European region witnessed flat growth, whereas Eastern Europe region faced some pressure. On the other hand Latam sales were impacted due to product supply disruption.

  • Operating margins declined dramatically to 1.9% during the quarter due to the presence of high margin Lipitor during 4QCY11 and other exceptional expenses viz., higher R&D, recall of Atorvastatin, additional expenditure for organizational productivity and the like. The company has not divulged its base business EBITDA margins. However, excluding the forex, contractual obligations and recall component, the base margins for the quarter are around 4%. Further it is pertinent to note that the company has made contractual payment of Rs 500 m. Earlier, Ranbaxy had made such payments for Lipitor generics to Teva as per contract signed between the companies. Thus, it is surprising that the company is still making such payments post the Lipitor exclusivity. Ranbaxy did not give the names of the products for which it made such contractual payments during the quarter.

  • The company reported a loss of Rs 4.9 bn in 4QCY12 which was lower than the loss of Rs 29.8 bn reported in 4QCY11 due to lower exceptional losses this quarter.

    Financial Highlights

  • Current outstanding derivative position is around US$ 1.07 bn. The maturity of these derivatives is US$ 40 m per month.

  • Total debt stands at US$ 885 m, while Cash & Bank balances are US$ 840 m. Thus net debt stands at US$ 45 m (vs. CY11 net debt of US$267 m).

What to expect?
At the current price of Rs 390, the stock is trading at a price to earnings multiple of 15 times our estimated base CY14 earnings. The recent recall of Lipitor has impacted the company's performance not only for this quarter, but it is also unlikely to grab back the market share of 40% which it had before recall. There are other various exceptional expenses incurred by the company, due to which there is little traction visible for its base business. The management remained confident of launching its products with exclusivity. The company is progressing over the consent decree as well. As the company is not able to fetch approvals of products on time due to its manufacturing issues, going forward, solving its issues with the US FDA will be the key in bolstering overall growth. Because of the recall of Lipitor and delay in the launch of Diovan, we have had to revise our estimates for the company. At this point of time we have a HOLD rating on the stock.

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