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Ranbaxy: Due for a correction?

Jun 21, 2000

There have been rumours about the imminent receipt of a milestone payment by Ranbaxy from Bayer, which seems to have propelled a movement in Ranbaxy’s stock price. Over the last one month (i.e. from May 22nd till June 20th 2000), the stock has jumped almost 33%.

Around the same time, Dr. Brian Tempest, President, Pharmaceuticals is reported to have indicated a figure of $ 500 m (approximately Rs 22.54 bn) of annual turnover for the current year ending December 2000. We beg to differ.

First, the company derives almost half of its turnover from India and the Middle East of which the Indian market accounts for 90% of the regional revenue. The Indian market has been witnessing a sharp slowdown over the last two years with overall growth of not more than 10% per annum. The antibiotic/antibacterial segment in which the company has a major presence (these account for almost 53% of the company’s domestic turnover) has been particularly slack.

Therapeutic Area Domestic % of Sales Exports % of Sales
Anti–Infectives 3,655.1 53.0% 1,755.1 57.8%
Gastro Intestinal tract 526.3 7.6% 378.1 12.5%
Nutritional/Multivitamins 554.6 8.0% 296.3 9.8%
Analgesics/NSAIDs 493.9 7.2% 163.0 5.4%
Dermatiologicals 541.0 7.8% 4.8 0.2%
Cardiovascular 292.0 4.2% 46.0 1.5%
Orthopaedics 293.9 4.3% 0.7 0.0%
CNS 223.4 3.2% 11.1 0.4%
Others 313.9 4.6% 379.2 12.5%
TOTAL 6,894.1 100.0% 3,034.3 100%

Second, even if one were to check out the domestic divisional performance, the pharma division’s (which targets general practioners) performance has been reflective of the slowdown. What is likely to lead to topline growth is the performance of Stancare and Solus, which deal with therapeutic areas such as cardiovascular and central nervous system.

Divisions CY99 CY2000E Growth (E)
Pharma 4,123.5 4,504.9 9.3%
Stancare 1,174.0 1,420.5 21.0%
Solus 356.3 481.0 35.0%
Rexcel 857.1 900.0 5.0%
Croslands 937.0 1,056.0 12.7%
TOTAL 7,447.9 8,362.4  
API 423.5 508.2 20.0%
Grand Total 7,871.4 8,870.6  
  • Pharma: This division deals with the old and famous brands of the company. Targets general practitioners
  • Stancare: Deals with specialised drugs and targets specialists
  • Solus: Deals in cardiovascular and central nervous system drugs
  • Rexcel: Deals with brands such acquired from Gufic for instance Mox
  • Croslands: Deals in drugs related to dermatology (skin infections) and orthopaedics

Thirdly, even in the first quarter of the current year Ranbaxy has reported a topline growth of hardly 3.2% (the bottomline has declined 19.4%). With almost over 50% of the company’s revenue accruing from products under the Drug Price Control Order (DPCO) it is difficult to visualise a 35% growth in the current year’s topline. Overall we expect the company to report a turnover in the range of Rs 17.85 bn for the year ending December 2000.

Perhaps, the only trump card in Ranbaxy’s armoury is the sale of RBx 2258 (the benign prostrate hyperplasia molecule) which is expected to be launched in the current year. If that does not happen, the scrip is unlikely to continue its outperformance for long.

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