Ranbaxy: Life without 'Lipitor' - Views on News from Equitymaster

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Ranbaxy: Life without 'Lipitor'

May 8, 2013

Ranbaxy has announced its 1QCY13 results. The company has reported 34% YoY decline in sales and 90% decline at the net level. Here is our analysis of the results.

Performance summary
  • Net sales decline by 34% YoY during the quarter, due to Lipitor exclusivity in 1QCY12, which is not present this quarter. Base sales register double digit growth.
  • Operating margins decline to 6.2% during the quarter, against 28.9% in 1QCY12. This was again due to the presence of high margin Lipitor during 1QCY12.
  • The company reports profit of Rs 1.3 bn in 1QCY13 down by 90% YoY.

Financial performance: A snapshot
(Rs m) 1QCY12 1QCY13 Change
Net sales 37,090 24,398 -34.2%
Operating Income 723 607 -16.1%
Expenditure 26,902 23,462 -12.8%
Operating profit (EBDITA) 10,911 1,543 -85.9%
EBDITA margin (%) 28.9% 6.2%  
Other income 607 624 2.8%
Interest (net) 187 525 181.4%
Depreciation 799 791 -1.0%
Exceptional gain/(loss)   3,447 818 -76.3%
Profit before tax 13,980 1,670 -88.1%
Tax   1,374 353 -74.3%
Minority Interest 139 59 -57.5%
Profit after tax/(loss) 12,468 1,258 -89.9%
Net profit margin (%) 33.6% 5.2%  
No. of shares (m)   421.0  
Diluted base earnings per share (Rs)     (4.7)  
Price to earnings ratio (x)*    NA  
*based on trailing 12 months earnings

What has driven performance in 1QCY13?
  • Net sales declined by 34% YoY during the quarter, due to Lipitor exclusivity in 1QCY12, which was not there this quarter. On a like to like basis, the company registered growth of 10% for the quarter.

    Consolidated business
    (Rs m) 1QCY12 1QCY13 Change
    USA 20,290  5,956 -70.5%
    Canada 755 936 24.1%
    Europe 3,672  4,484 22.1%
    Africa 2,264  2,818 24.5%
    CIS & Latam 1,911  1,619 -15.3%
    Asia & Middle East - exclud India 1,559  1,296 -16.9%
    India  4,175  4,499 7.8%
    OTC 755 976 29.3%
    API 1,710  1,816 6.2%
    Total Income from operations 37,090 24,398 -34.2%

  • Domestic business (including OTC) grew by 11% YoY for 1QCY13. The company continues to witness robust growth in its OTC segment, which grew by 29% YoY for the said period.

  • Revenues from the US segment declined by 70% YoY, largely on the back of 180-days exclusivity for Lipitor and Caduet generics during 1QCY12. During the quarter Ranbaxy re-launched Lipitor generics (atorvastatin) in the US market. Absorica which was launched during 4QCY12, is also gaining traction. Currently, Ranbaxy holds approx 9% of prescription market share in US. 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 will be soon launching Pristiq generics (This is an 505b(2) application, which means drug is not exact generic of the brand, and has some variation. The indication will be largely the same as for the brand). Ranbaxy has entered into agreement with Alembic Pharma for marketing of this drug, while manufacturing will be done by Alembic. Ranbaxy continues to focus on FTF opportunities. This is evident from the fact that during quarter, the company filed 3 ANDAs of which 2 are potential FTFs. In CY12 too, the company had filed 5 Para IVs (FTFs) having market size of US$ 4.5 bn.

  • Other markets were a mixed bag. While some regions witnessed good growth, other markets like CIS, Latam, Asia and Middle East witnessed growth pressure. Among European countries Western Europe too declined by 18% YoY for the quarter.

  • Operating margins declined to 6.2% during the quarter, against 28.9% in 1QCY12. This was again due to the presence of high margin Lipitor during 1QCY12. The increasing operating costs, contractual payments and forex loss had impacted the overall margins. The operating costs include expenses pertaining to resolution of consent decree. The company has not stated till what period such expenses will occur going forward. However, once expenses towards plant resolution start coming down, better margins can be expected. As per the management, adjusting for various one offs, the operating margins for the quarter are approx 9%-9.5%.

  • The company reported profit of Rs 1.3 bn in 1QCY13 down by 90% YoY. Ranbaxy incurred gain towards its forex liabilities. Excluding this impact, PAT was down by 95% YoY. High margin Lipitor in the previous year and surge in interest costs impacted the bottom line.

Financial Highlights and other updates
  • Current outstanding derivative position is around US$ 962 m. The maturity of these derivatives is US$ 36 m per month.

  • Total debt stands at US$ 824 m, while Cash & Bank balances are US$ 658 m. Thus net debt stands at US$ 167 m.

  • Lipitor - The company has market share of just 2% after it its recent launch. However it expects ramp up in the sales of atorvastatin. Some time back when recall was done for atorvastatin generics, the drug was supplied through its Mohali facility. However, now this drug is supplied from Ohm Laboratories. One should note the margins are better when a drug is supplied from Indian facilities owing to lower costs.

What to expect?

At the current price of Rs 438, the stock is trading at a price to earnings multiple of 14 times our estimated base CY15 earnings. Though the company has re-initiated atorvastatin sales, it is unlikely that company will be able to retain ~40% market share with better margins. There are other various exceptional expenses incurred by the company, due to which there is little traction visible for its base business. Ranbaxy continues to focus on FTF opportunities and is also doing filings on similar lines, which will be the future growth drivers for the company. Ranbaxy has not been able to fetch approvals for products on time especially for those where its holds exclusivity. Thus getting timely approvals and resolving USFDA issues will be the key in bolstering overall growth. The management remained confident of launching its products with exclusivity. The company is progressing over the consent decree as well. In light of current scenario we maintain HOLD rating on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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