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Ranbaxy: Forex losses take toll
Aug 8, 2013

Ranbaxy has announced its 2QCY13 results. The company has reported an 18% YoY drop in sales and a loss of Rs 5.2 bn at the net level. Here is our analysis of the results.

Performance summary
  • Topline declines by 18% YoY during 2QCY13 as there were exclusive opportunities in the previous quarter which were not present this quarter.
  • Operating margins shrink by 0.6% to 7.4% during the quarter leading to a 23.5% YoY drop in operating profits.
  • The company reports a loss of Rs 5.2 bn at the net level. This is largely due to exceptional losses of Rs 4.8 bn on account of mark to market losses on derivatives and outstanding foreign currency loans.

Financial performance: A snapshot
(Rs m) 2QCY12 2QCY13 Change 1HCY12 1HCY13 Change
Net sales 32,046 26,332 -17.8% 69,136 50,730 -26.6%
Operating Income 544 503 -7.6% 1,268 1,110 -12.5%
Expenditure 29,981 24,838 -17.2% 56,883 48,295 -15.1%
Operating profit (EBDITA) 2,609 1,996 -23.5% 13,520 3,545 -73.8%
EBDITA margin (%) 8.0% 7.4%   19.2% 6.8%  
Other income 697 354 -49.3% 1,304  978 -25.0%
Interest (net) 1,648 1,591 -3.4% 1,835 2,117 15.3%
Depreciation 783 763 -2.5% 1,581 1,559 -1.4%
Exceptioan gain/(loss) (5,994) (4,862)   (2,546) (4,044) 58.8%
Profit before tax (5,118) (4,866)   8,862 (3,196) -136.1%
Tax 682 311 -54.3% 2,057  665 -67.7%
Minority interest 57 65 14.0%  194 123 -36.8%
Profit after tax/(loss) (5,857) (5,242)   6,610 (3,984)  
Net profit margin (%) -18.3% -19.9%   9.6% -7.9%  
No. of shares (m)         421.0  
Diluted base earnings per share (Rs)         (6.2)  
*based on trailing 12 months earnings
What has driven performance in 2QCY13?
  • Net sales declined by 17.8% YoY during the quarter, due to one-time exclusivities during the previous quarter. On a like to like basis, the company registered growth of 10% for the quarter.

    Consolidated Business Snapshot
    (Rs mn) 2QCY12 2QCY13 Change 1HCY12 1HCY13 Change
    North America 14,716 8,516 -42.1% 35,645 15,408 -56.8%
    Eastern Europe and CIS 3,109 3,260 4.9% 6,032 6,865 13.8%
    Western Europe 2,707 1,958 -27.7% 4,991 3,975 -20.4%
    Asia Pacific and Latam 1,801 2,082 15.6% 3,752 3,741 -0.3%
    Africa and Middle East 2,661 2,828 6.3% 5,099 5,811 14.0%
    India 5,388 5,426 0.7% 10,275 10,853 5.6%
    API and Others 1,664 2,263 36.0% 3,342 4,077 22.0%
    Total Income from Operations  32,046  26,333 -17.8% 69,136 50,730 -26.6%

  • Domestic business (including OTC) remained flat during the quarter. The company faced challenges in the domestic market on back of (a) implementation of new pricing policy resulting to slow demand from trade channels and (b) slow down in the sales of anti infective drugs. As per the management company expects new pricing policy to impact the approx 8% of the total domestic sales (Approx. Rs 1700 m of the company).

  • Revenues from the US segment declined by 42% YoY, largely on the back of 180-days exclusivity launches in 2QCY13. As per the management, the company has witnessed Q-o-Q improvement in the US sales. This is largely due to better market share in Absorica and improvement in the base sales. Absorica which was launched during 4QCY12, is also gaining traction. Currently Ranbaxy holds approx 14% from 9% in 1QCY14of prescription market share in US. During the quarter company filed 1 ANDA, the current ANDAs pending for approval are approx 30 of which 8 are FTFs worth $ 6 bn. We believe the major products among these FTFs are Valcyte, Diovan and Nexium.

  • Other markets was mixed bag, some regions of Western Europe witnessed decline in sales. The sales in this geography were impacted due to various macro factors

  • Operating margins shrink by 0.6% to 7.4% during the quarter leading to a 23.5% YoY drop in operating profits. However, these margins have one time impact of various line items for both the quarters. On the base business, the company's EBITDA margins have improved by 1.5% to 7.4% for the quarter. As per the management, the company expects these margins to improve going forward. This is because Ranbaxy is incurring huge costs towards remedial expenses to the consultant to resolve the plant issues. These expenses are expected to come down gradually.

  • The company reported a loss of Rs 5.2 bn at the net level. This is largely due to exceptional losses of Rs 4.8 bn on account of mark to market losses on derivatives and outstanding foreign currency loans.

    Financial Highlights and other updates

  • Current outstanding derivative position is around US$ 860 mn. The maturity of these derivatives is US$ 35 m per month.

  • Total debt stands at US$ 968 m, while Cash & Bank balances are US$ 259 m. Thus net debt stands at US$ 727 m.

  • Guidance - In the beginning of the year company had given guidance of $120 bn. This also included launch of various exclusive product launches likes of Diovan (Brand size $ 3 bn). The company continues to maintain its guidance and will give more clarity during 3QCY13 on various exclusive launches.

What to expect?

At the current price of Rs 317, the stock is trading at a price to earnings multiple of 11 times our estimated CY15 earnings. Ranbaxy continues to focus on FTF opportunities and is also doing filings in the similar lines, this will be future growth drivers for the company. Ranbaxy is not able to fetch approvals of products on time especially for the products 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. The base business margin improvement is positive for the company. As company is still facing various issues on the USDFDA front, and the time line of its resolution remains uncertain, we would advice not to Buy the stock at this level and 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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