Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Research holds the key - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Apr 19, 1999

    Research holds the key

      Circa 1994 - Ranbaxy sets up a new state-of-the-art laboratory in Gurgaon, Delhi. Not many are impressed. Will an Indian pharma company actually conduct original research? Will the development time and costs pay off?

      Circa 1999 - Ranbaxy's stock has risen by over 311 percent since the start of the year. Why? The company's research centre has successfully implemented a new drug delivery system for a major multinational company. New reports estimate that payments from royalties and development charges could top $100 million over the next 5-7 years.

      'Made in India' research pays off...
      Ranbaxy's new research-based drive has made analysts sit up and take notice. And how! From a market cap of $ 711 million at the start of this year, the company now trades at a P/E multiple of 119 and commands a market value of $ 2.9 billion. And they are still saying 'BUY'. The story is not only about the stock price, the results too have started showing. Figures for the second quarter ended June 1999 revealed 17 percent top line growth and 16 percent growth at the net profit level.

      For a company that was once regarded as one with slow domestic brands, and low margin bulk drugs in the export market, the change of image has not come easy, or cheap. Ranbaxy (market capitalisation: $ 2.9 billion) is valued today as a research and development (R&D) driven company, more importantly in a sector dominated by multinational companies. In fact the company spends close to 6 percent of its sales on research and development.

      Incorporated in 1962, Ranbaxy (financial year 1999 revenues, $ 260 million) is India's largest pharma company in terms of total sales, and accounts for the third largest slice (after Glaxo and Cipla) of the domestic pharma pie. It derives 66 percent of its revenues from value-added formulations with bulk drugs making up the balance. Ranbaxy operates six manufacturing plants across the world and has set up about 20-odd joint ventures and subsidiaries globally. Chief amongst these are ventures in the United States, Ireland, UK, Netherlands, China and Russia. Not surprisingly, it derives about 44 percent of its revenues from the export of its pharmaceutical products (mainly bulk drugs).

      Management pro-active to change...
      Ranbaxy has taken conscious steps to consolidate its position in the post-GATT era (where product-based patents as against process-based are recognised). These include launching new products and establishing brands locally. Its merger with Croslands Research in 1997 and acquisition of seven brands from Gufic were all steps in this direction. In 1998, it launched 20 new products, of which, a few met with reasonable success. To strengthen its domestic market share, Ranbaxy also entered into marketing arrangement with Cipla, Glaxo and HMR. For its global effort, Ranbaxy acquired two units (Ohm Labs, New Jersey) and Rina Pharmaceuticals, Ireland) and also bought out marketing rights for Natco's brands in CIS and Kazhakastan. It also entered into a 50:50 joint venture with Schein in the US for marketing generics.

      The US market figures prominently in Ranbaxy's overall company strategy. (Have a look at this week's sector note). Ranbaxy has already filed 6 Abbreviated New Drug Approvals (ANDA), - pre-conditions to enable it to market its generics in the US. Over the next 12 months, the company has plans to file ANDAs for another 10-12 generics.

      Ranbaxy's strong background in chemical synthesis and reverse engineering will help it develop generic equivalents for the drugs going off patent. Besides its low cost of production will enable it to effectively compete with other international companies. To get around competition, Ranbaxy has tied up with existing players wherever possible. It has tie ups with Schein, Barr, Mallinckrodt and Zenith Golden for marketing its generic products in the US.

      NDDR, success story?
      However the most promising story about Ranbaxy is of the success it has tasted with the Novel Drug Discovery Research (NDDR) programme. In NDDR, Ranbaxy filed its first investigational new drug (IND) patent application for a new molecule in October 1998, and is currently conducting Phase-I of clinical trials of the product in India. Licensing of the molecule post-testing could reap rich rewards for the company, and could be substantially high considering that the international market for the product is expected to be about $ 3 billion by 2003. The company's research division has plans to launch a new IND every 18 months.

      There are a few concerns though. With 20 JVs in as many countries, there is a feeling that the Ranbaxy may have spread itself too thin. Also, the figures for license of its new IND are based on market expectations and the company has so far not made any official announcement to the effect. In any case, with prices of bulk drugs picking up in the domestic market, and exports of formulations looking better, this company looks set to reap the dividends of its fundamentally strong position. Its foray into basic research, though expensive, may eventually prove to be the major revenue driver for the company in the years to come.



      Equitymaster requests your view! Post a comment on "Research holds the key". Click here!


      More Views on News

      Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

      Aug 14, 2017

      A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

      Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

      Aug 14, 2017

      GST impact coupled with price erosion in US leads to lower profits for the quarter.

      Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

      Aug 8, 2017

      Profits plunge due to higher raw material costs.

      Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

      Jun 23, 2017

      Net Profit lower due to exceptional items in the previous year.

      Sun Pharma: Price Erosion in US Impacts Growth (Quarterly Results Update - Detailed)

      May 30, 2017

      US markets decline while other geographies grow in the quarter.

      More Views on News

      Most Popular

      Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

      Aug 7, 2017

      The data tells us quite a different story from the one the government is trying to project.

      Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

      Aug 4, 2017

      The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

      Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

      Aug 8, 2017

      Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

      Signs of Life in the India VIX(Daily Profit Hunter)

      Aug 12, 2017

      The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

      7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

      Aug 7, 2017

      Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

      Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
      Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

      LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

      SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

      Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
      Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Apr 1, 2015 (Close)


    • Track your investment in RANBAXY LAB with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks