Ranbaxy: Right growth prescription`

Ranbaxy has recorded an 11% increase in revenues and a strong 42% increase in bottomline. Exports constituted 64% of the total revenues. For 1HFY04, Ranbaxy has reported a 51% increase in topline and 59% increase in bottomline.

(Rs m)	2QFY03	2QFY04	Change	1HFY03	1HFY04	Change
Net Sales	7,448	8,277	11.1%	13,158	19,174	45.7%
Other Income	25	931	3624.0%	55	987	1694.5%
Operating expenses	5,827	6,642	14.0%	10,584	14,112	33.3%
Operating Profit (EBDIT)	1,621	1,635	0.9%	2,574	5,062	96.7%
Operating Profit Margin (%)	21.8%	19.8%		19.6%	26.4%
Interest (net)	53	17	-67.9%	181	23	-87.3%
Depreciation	203	188	-7.4%	401	367	-8.5%
Profit before tax and extraordinary items	1,390	2,361	69.9%	2,047	5,659	176.5%
Extra-ordinary Items	356	48	-86.5%	920	97	-89.5%
Tax	362	441	21.8%	634	990	56.2%
Profit after Tax	1,384	1,968	42.2%	2,333	4,766	104.3%
Net profit margin (%)	18.6%	23.8%		17.7%	24.9%
No. of Shares (eoy) (m)	116.0	185.0		116.0	185.0
Diluted earnings per share*	29.9	42.6		25.2	51.5
P/E ratio		19.1			15.8
(* annualised)

Other income has seen a sharp rise on account of the the company receiving its share of revenues from Bayer for the sale of Ciprofloxacin OD. An increase in the R&D expenditure from Rs 365 m to Rs 486 m has resulted in a marginal drop in the operating margins.

Ranbaxy had restructured its debt portfolio by borrowing US$ 10 m through the ECB route and repaying its high cost debt. The company has thus been able to bring down its interest cost by 38%. This coupled with a drop in the depreciation expenses has helped Ranbaxy record a sharp improvement in its net margin. On a consolidated basis, Ranbaxy has registered an 18% growth in the topline and a 21% increase in the bottomline during the quarter.

The stock is currently trading at Rs 812 implying a P/E of 16x its annualised 1HFY04 earnings. Considering Ranbaxy’s strong growth potential in the generics segment, which has been given a boost with the US government reducing the time period for drug approval and the inclusion of generics in the US government sponsored 'Medicare' policy, combined with its focus on developing a strong NCE and ANDA pipeline, the company has good long-term prospects. However, the risk profile of the stock is also on the higher end given the inherent risks involved in NCE research and complex regulatory procedures on the ANDA front.