Ranbaxy vs Dr. Reddy's: Which one is better? - II - Views on News from Equitymaster

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Ranbaxy vs Dr. Reddy's: Which one is better? - II

Mar 26, 2011

In the previous article, we compared Ranbaxy and Dr Reddy's on their business segments. Moving a step ahead, let us now focus on the revenues segmentation and some other financial parameters.

Revenue Segmentation

The revenue of Ranbaxy was about Rs 70 bn in CY09, while that of Dr Reddy's was about Rs 75 bn FY10. Even though, Ranbaxy and Dr Reddy are Indian companies, the revenue for both comes from diverse geographies. 67% of Dr Reddy's total revenues come from North America, Europe, Russia and the CIS while that from Ranbaxy is 50%. India's contribution to the top line of both companies is around 20% only.

Revenue growth and EBITDA margins

The total revenue growth for pharma companies year after year cannot give us a true picture as there are times when generic pharma companies reap benefits of the 180 day exclusivity period. The company getting this exclusivity will gain higher volumes and margins only for the period of 180 days. Post which the competition will hamper prices as well as revenues.

In CY07, Ranbaxy's global sales recorded a robust growth leading to a 10% increase in total revenues. But for CY08 and CY09, the revenue growth was muted. This impact on the business could be attributed to the financial crises of 2008 and the US FDA imposing a ban on two of its manufacturing facilities at Dewas and Poanta Sahib. However in CY09, the company was able to launch three First-To-File (FTF) products from its US facilities and one authorized generic.

Ranbaxy has a strong FTF pipeline but is unable to grab the opportunities due to its issues regarding the manufacturing facilities. But, a point to be noted is that the FDA issue is now two years old and the chances of success are better. Though, as of now, this issue is draining the margins.

The revenue for Dr Reddy's decreased by more than 20% in FY08 as compared to the previous year. This was because there were no new authorized generics or 180 day exclusivity drugs launched in that year, whereas, there were four such successful US generic launches in FY07. The steep rise in revenues in FY09 can be majorly attributed to the launch of Sumatriptan - the authorized generic version of Imitrex in the USA ahead of other competitors. This alone had contributed about 10% tototal revenues in FY09.

EBITDA margin impact in FY08 can be attributed to the difficulties in the change in the structure of the German market after the acquisition of Betapharm in Germany. The new tender based system increased the generic competition drastically and the realizations fell steeply too.

R&D costs for both the companies are almost in a similar range. But recently, Daiichi Sankyo hived off the new drug discovery research (NDDR) unit from Ranbaxy. This will bring down the research cost quite substantially in the next few years. Dr Reddy's consistently is investing 6% plus of revenues in R&D activities. One of its new chemical entities (NCE) is currently in late phase-III clinical trials.

We can conclude that the revenue contribution for both the companies is quite diverse. The revenue growth in the North American market will be a crucial parameter for Dr Reddy. The margins for Ranbaxy should improve once the issues regarding two of its manufacturing facilities are resolved.

In the next article we will take the comparison further to understand both the companies' balance sheet ratios and price performance.

Ranbaxy vs Dr Reddy's Which one is better? - Series - Previous article | Next | All Articles

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7 Responses to "Ranbaxy vs Dr. Reddy's: Which one is better? - II"


Apr 7, 2011




Apr 4, 2011

the analysis may be less elaborate than the given but please make the picture clear and emphatic as to which is better nad why ,may be in a snippet.


Ramlal mundhra

Apr 3, 2011

I agree with the views of Mr Aditya. When U reaserch why cant the full article be posted on one go.



Apr 1, 2011

Where is the 3rd part of the comparision? Part 2 was posted on 26th march, today it is 1st April, the 3rd part is yet to be published. It would have been better to post it as a single article.....



Mar 28, 2011

Both the companies are strong indian pharmaceutical companies.Tomorrow as equtymaster keeps harping on CRAMS and it's impact on the pharma sector is going to be crucial ,i do feel Drreddy's has the edge due to it's
superior R&D facilities located in india vis a vis ranbaxy which has to rely on daiichi sankyo.Bulk drug manufacturing will be the key and i do feel drreddy's has the advantage.



Mar 27, 2011

this comparison does not give any idea. there is lack of substance in this.


Dr Dilip

Mar 26, 2011

it will b better to give all the details about both companies in one go rather than spreading in many parts and giving them at different time.then we can compare in abetter way.

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