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Ranbaxy: Riding on the US wave

Apr 29, 2003

Powered by a 161% growth in exports, Ranbaxy Laboratories Limited, has reported a 51% growth in consolidated net sales and nearly 94% sales growth on a standalone basis in the March quarter. The company reported a 77% growth in net profits (consolidated) and nearly 195% growth in standalone profits.

Consolidated numbers
(Rs m)1QFY031QFY04ChangeFY03
Net sales7,34511,10251.2%37,138
Other Operating Income118539356.8%1,379
Total operating income7,46311,64156.0%38,517
Other income517751.0%245
Operating expenses6,3029,01843.1%30,606
Operating profit1,1612,623125.9%7,911
Operating profit margin (%)15.6%22.5%44.8%20.5%
Interest 19877-61.1%387
Profit before tax and extraordinary items7182,251213.5%6,818
Extra-ordinary Items818102-87.5%876
Technology Licencing Income00-640
Profit after Tax/(Loss)9781,73977.8%6,478
Minority interests110900.0%8
PAT after minority interests9771,72977.0%6,470
Net profit margin (%)13.3%15.6% 17.4%
No. of Shares (eoy) (m)115.9185.5 185.5
Earnings per share*21.137.3 34.9
Current P/e ratio 18.1 19.3

Overseas markets reported strong growth largely led by the generics spurt. Non-India revenues now form 81% of the company's global sales. This region reported over 78% growth during the quarter. US has emerged as Ranbaxy's largest market (accounting for 48% of global revenues). This region has grown by a strong 120% YoY during 1QFY04. In January 2003, Bayer had launched its Cipro once-a-day product (500mg) in the US market. This seems to be the likely reason for the strong US led growth. Europe too, grew by a strong 52% YoY, now accounting for over 10% of revenues. The growth in Europe region was largely spearheaded by UK, with a growth of 56% YoY. Germany also performed well with a growth of 82% over the corresponding period, though on a relatively smaller base.

Regional sales break-up
(US$ m)1QFY031QFY04Change% of sales in 1QFY04
India (Rs m)2,353 2,202 -6.4%19.8%
Europe (UK, Russia, Germany, Poland)162452.0%10.3%

India (i.e. the domestic market), was the only soft spot in the company's performance. The company's sales dipped by a marginal 6.4% during the March quarter, in keeping with the overall slowdown in the domestic industry. As per ORG figures released by the company, the industry witnessed a flat growth of 0.7% during the March quarter. This is much slower than the 8% industry growth witnessed in the year 2002. The company also attributed the dip in domestic sales to the uncertainty over VAT, coupled with the continuous declining trend in the anti-infective market over the past eight months. India's share in Ranbaxy's revenues which stood at 32% in March quarter last year, is currently just below 20% of revenues.

Standalone numbers
(Rs m)1QFY031QFY04ChangeFY03
Net Sales 5,289 10,24993.8%27,686
Other operating income 181 648258.0%1,794
Other Income 33 5669.7%199
Total expenditure 4,517 7,47065.4%23,082
Operating Profit (EBDIT)9533,427259.6%6,398
Operating Profit Margin (%)18.0%33.4% 23.1%
Interest 131 6-95.4%208
Depreciation 198 179-9.6%594
Profit before Tax6573,298402.0%5,795
Extraordinary items 564 49 -91.3%1,339
Tax 272 549101.8%898
Profit after Tax/(Loss)9492,798194.8%6,236
Net profit margin (%)17.9%27.3% 22.5%
No. of Shares (eoy) (m)115.9185.5 185.5
Earnings per share*20.560.3 33.6
Current P/e ratio 11.2 20.0

Ranbaxy, which is India's largest pharma company, has emerged as a true Indian MNC. The company now sells its products in over 70 countries, with ground operations in 25 countries and manufacturing operations in 7 countries. The company's R&D expenses have shot up from 2.3% of total operating income (consolidated) last year to 5.3% during 1QFY04. This fact stresses on the company's continued focus on the global market. During the quarter, Ranbaxy received 5 approvals, taking the cumulative number of approvals to 63 (33 approvals are still pending).

Sales break-up
(Rs m)1QFY031QFY04Change
Domestic 2,353 2,202 -6.4%
Exports3,176 8,291 161.1%
Less: Trade discounts240 244 1.7%
Net Sales (standalone)5,289 10,249 93.8%

At Rs 674, the stock is trading at 18.1x annualised 1QFY04 earnings (consolidated). Ranbaxy continues to reap the rewards of its strategy to set up presence across the globe. The company had clocked 148% net profit rise in FY03 too, backed by a strong 38% topline increase. Owing to the stupendous rates of growth, the company's valuations look to be on the lower side. But as we have seen in the past, Indian generic companies have had a string of volatile quarters and the performance is not a benchmark of things to come. But we are enthused by the company's strong march forward globally.

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