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Ranbaxy: 3QFY02 result analysis

Oct 11, 2001

Ranbaxy has declared its results for 3QFY02. Sales have grown by more than 16%, beating our expectations of 14.5% growth. Operating margins have also improved by 60 basis points, more or less in line with our expectations. There was a sharp spurt in interest expenses, up by over 163%. This was due to the fact that interest expenses in the previous year were net of interest income. However, interest income dipped in the current quarter, as the company didn’t book any income from its subsidiary, Vidyut Investments that discontinued its stock market lending operations. Tax provision also grew considerably on the back of change in accounting policy on deferred taxation.

(Rs m)3QFY013QFY02 % Change
Sales 4,759 5,535 16.3%
Other Income 11 7 -36.4%
Expenditure 3,973 4,591 15.6%
Operating Profit (EBDIT) 786 944 20.1%
Operating Profit Margin (%)16.5%17.1%3.3%
Interest 82 216 163.4%
Depreciation 125 130 4.0%
Profit before Tax 590 605 2.5%
Extraordinary Income/Provisions  727  
Provisions/Contigencies  (300) 
Tax 59 141 139.0%
Profit after Tax/(Loss) 531 891 67.8%
Net profit margin (%)11.2%16.1% 
No. of Shares (eoy) (m) 116 116  
Diluted Earnings per share* 18.3 30.7 
P/E (at current price)35.821.4 
(*- annualised)   

Net profit leapfrogged by 68%, primarily on the back of a one-time income from the sale of 50% stake in Eli Lilly Ranbaxy Ltd. The company has booked a profit of Rs 727 m from this sale. The company has also provided for Rs 300 million as provision on its stock market lending/operations in Vidyut Investments, the investment arm of the company.

While domestic sales grew by 9%, exports registered a healthy growth of 24%. In the domestic markets, the company continued its efforts to reduce its dependence on anti-infective segments by launching new products in anti-diabetic and NSAID (Non Steroidal Anti-inflammatory Drugs) segments. In the export business, the company continued its thrust on high margin formulation exports compared to bulk drugs. Formulations exports jumped by 56% fueled by the higher exports to USA and Western Europe. Ranbaxy also registered maiden sales of US$ 9m in Brazil in first nine months of operations.

Ranbaxy’s US subsidiary Ohm Laboratories announced generic launch of Ibuprofen-Pseudoephedrine combination tablets across US markets. The combination is a generic version of Advil, a cold and sinus drug with a market size of around US$ 46 m. This was one of Ranbaxy’s successful first-to-file Para IV approvals (this entitles the company to have six-month marketing exclusivity). On a conservative basis, we expect net profit of US$ 3.5 m from this launch, spread over next six months.

Going forward, Ranbaxy is all set to capture a larger pie of export formulations and generics market with a wide product basket and mature ANDA filings. Ranbaxy has the widest basket of 39 products targeted at the US generics market. Further, unlike other pharma companies, Ranbaxy has not restricted itself to the US markets and has positioned itself as an integrated player in the export markets. Again unlike others, Ranbaxy has invested huge sums in creating a direct presence in 25 countries across the globe through various subsidiaries. Apart from US, the company has identified UK, Brazil, China and Germany as its key markets.

Further, Ranbaxy has filed ANDA's for Cefuroxime Axetil and Isotretinoin, (Para IV) for six month marketing exclusivity. If granted, this could be a big earning opportunity for the company as combined branded sales for both the drugs are in excess of US$ 1 bn. We expect the company to earn US$ 30 m and US$ 65 m from Cefuroxime and Isotretinoin respectively. The litigation for Cefuroxime Axetil is currently on in the US and the launch of the drug would depend on the outcome of the litigation. Read more on Cefuroxime Axetil Opportunity.

Overall, the results have been satisfactory. We expect export momentum to continue going forward due to several developments as mentioned above. We maintain our estimates for sales target for FY02.

Comparative Valuations
ParticularsCMPP/E (x)
(Rs.)2002E2003E
Ranbaxy6603124
Cipla10262419
Dr.Reddy's18572116

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