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Ranbaxy: Export bonanza

Jul 18, 2002

Numbers actually speak for themselves. Driven by sky rocketing performance in the overseas business, Ranbaxy Laboratories has declared 189% increase in net profits, with a strong topline growth of 46% (on a standalone basis). Operating margins leapfrogged more than 550 basis points, primarily on the back of high margin exports. The company has declared 3:5 bonus (i.e. 3 bonus shares for every 5 shares held).

(Rs m) 2QFY02 2QFY03 % Change 1HFY02 1HFY03 % Change
Sales 5,104 7,448 45.9% 9,689 13,158 35.8%
Other Income 12 25 108.3% 24 55 129.2%
Expenditure 4,270 5,827 36.5% 8,210 10,584 28.9%
Operating Profit (EBDIT) 834 1,621 94.4% 1,479 2,574 74.0%
Operating Profit Margin (%) 16.3% 21.8%   15.3% 19.6%  
Interest 138 53 -61.6% 245 181 -26.1%
Depreciation 181 203 12.2% 350 401 14.6%
Profit before Tax 527 1,390 163.8% 908 2,047 125.4%
Extraordinary Income - 356 NA 233 920 294.8%
Tax 49 362 638.8% 106 634 498.1%
Profit after Tax/(Loss) 478 1,384 189.5% 1,035 2,333 125.4%
Net profit margin (%) 9.4% 18.6%   10.7% 17.7%  
No. of Shares (eoy) (m) 116 116   116 116  
Diluted Earnings per share* 16.5 47.7   17.8 40.2  
P/E (at current price)   19.2     22.7  
(*- annualised)            

The highlight of the quarterly results was the strong performance recorded by Ranbaxy in the US markets. The US subsidiary of the company recorded 206% topline growth for the quarter. US markets now contribute 35% of the global (consolidated) sales of the company surpassing the contribution from the domestic markets (30%). While formulation exports grew by more than 140%, bulk exports were up 24%. The growth in formulation exports was driven primarily by anti-infective, Cefuroxime Axetil (Ceftin), which contributed approximately US$ 37 m (Rs 1.8 bn) to export sales.

It may be recalled that due to lack of any other player in the market with necessary approvals, Ranbaxy enjoys ‘technical’ monopoly (in generic version) for marketing anti-infective, Cefuroxime Axetil (Ceftin) in the US markets. The company has already enjoyed almost 5 months of exclusivity on the US$ 400 m drug and the exclusivity is likely to continue atleast for another 6 months. Ranbaxy has already mopped up US$ 37 m sales from this drug (till June'02) and currently enjoys more than 55% market share of the product. We expect sales from Cefuroxime Axetil (Ceftin) to touch US$ 90 m in the current year. Read more on Ceftin opportunity . All in all there was a sharp improvement in margins on account of high margin formulation exports, which has registered a 65% growth in the first half.

Ranbaxy - Exports led performance
Particulars 2QFY03 % Growth 1HFY03 % Growth
Domestic        
Formulations 2,245 7.1% 4,171 9.1%
Bulk 167 -45.1% 427 -27.6%
Allied Businesses 233 0.4% 400 -1.2%
Sub Total 2,645 0.5% 4,998 3.8%
Exports        
Formulations 3,264 140.0% 5,410 139.1%
Bulk 1,235 23.5% 2,265 -4.4%
Sub Total 4,499 0.5% 7,675 65.7%
TOTAL 7,144 43.1% 12,673 34.1%

The performance in the domestic market was however lackluster, primarily on account of 45% negative growth recorded by the company in the bulk drug business. This was due to planned reduction on account of increasing requirements to meet its internal formulation sales and also on account of giving preference to bulk exports vis'-a-vis' domestic market. Formulations sales in the domestic market are more or less in line with the industry growth rates.

The research spend of the company is steadily inching ahead, representing more than 5% of the company's sales. Ranbaxy recently announced an agreement to out-license its lead R&D molecule (RBX-2258) for the treatment of Benign Prostrate Hyperplasia (BPH) to Schwarz Pharma of Germany. The company would receive milestone payments (excluding royalties) of up to US$ 42 m from Schwarz. Ranbaxy has received upfront payment of Rs 302 m (US$ 6.1 m) from the deal. The company has not disclosed details on royalty payment terms (percentage). Schwarz Pharma would get the rights to develop, market and distribute the drug in USA, Japan and Europe while Ranbaxy retains rights in the other markets. The 500 mg Cipro-D molecule licensed to Bayer AG has completed its clinical trials and the Bayer has filed an NDA (New Drug Application). It may be noted that following approval from the authorities, it would reach the commercialisation stage. This could trigger a considerable milestone payment for Ranbaxy. Considering the time taken by regulatory authorities for approval, we expect launch of Cipro-D by mid-2003, ahead of original Ciprofloxacin patent expiry in 2003 end.

Consolidated Results Snapshot
Rs m 2QFY03 1HFY03
Sales 9,585 17,288
Operating Profit 2,061 2,728
Operating Margins (%) 21.5% 15.8%
Net Profit 1,709 2,687
EPS* (annualised) 58.9 46.3
Ranbaxy has ramped up its product approvals in last few months for the international markets. The latest one being, generic manufacturing and marketing approval for all combinations of Lisinopril drug, which is a multi-billion cardiovascular molecule. The company currently has a basket of 47 products for the US markets, far ahead of any other Indian generic company. As mentioned earlier, the US geography recorded 185% growth for 1HFY03. Even excluding Ceftin sales, formulations sales in the US registered an impressive 95% growth for the first half of the current year. European sales growth was also encouraging at 36%. There has been a sharp improvement in the global performance of the company for the second quarter as is evident from the above table. The company's targeted penetration in Germany, Brazil and UK seems to be working well.

At the current market price of Rs 916, the stock is trading at 19x 1HFY03 annualised earnings on a consolidated basis. The results are well above our expectations. The company seems all set to cross US$ 100 m net profit for FY03. Considering rapid ANDA (Abbreviated New Drug Applications) and expanding export portfolio of the company, the company clearly has well laid out infrastructure to lead the lucrative generic opportunity.


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