Ranbaxy: 'Ceftin' kicker - Views on News from Equitymaster

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Ranbaxy: 'Ceftin' kicker

Oct 17, 2002

Ranbaxy Laboratories has reported consolidated revenues of Rs 10.4 bn (US$ 216 m) for 3QFY03, which is in line with market expectations. On a stand alone basis, the company has reported a growth of 55% in revenues (including other operational income). Though there has been margin expansion, it is slightly lower than our expectations. We maintain our FY03 EPS estimate of Rs 31 on consolidated basis for the company.

(Rs m) 3QFY02 3QFY03 % Change 9mFY02 9mFY03 % Change
Sales 5,535 8,604 55.4% 15,224 21,762 42.9%
Other Income 20 50 150.0% 89 111 24.7%
Expenditure 4,538 6,568 44.7% 12,748 17,060 33.8%
Operating Profit (EBDIT) 997 2,036 104.2% 2,476 4,702 89.9%
Operating Profit Margin (%) 18.0% 23.7%   16.3% 21.6%  
Interest 229 46 -79.9% 519 233 -55.1%
Depreciation 183 142 -22.4% 533 635 19.1%
Profit before Tax 605 1,898 213.7% 1,513 3,945 160.7%
Extraordinary Income 427 48 NA 660 968 46.7%
Tax 141 352 149.6% 275 986 258.5%
Profit after Tax/(Loss) 891 1,594 78.9% 1,898 3,927 106.9%
Net profit margin (%) 16.1% 18.5%   12.5% 18.0%  
No. of Shares (eoy) (m) 116 185   116 185  
Diluted Earnings per share* 30.8 34.4   21.8 28.3  
P/E (at current price)   16.4     20.0  
(*- 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 216% 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 150%, bulk exports were down 4%. 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 continues to enjoy ‘technical’ monopoly (in generic version) for marketing anti-infective, Cefuroxime Axetil (Ceftin) in the US markets. The company launched the drug in March this year and already enjoyed more than 7 months of exclusivity on the US$ 400 m drug and this exclusivity is likely to continue at least for another 6 months. Apotex, the nearest generic competitor of Ranbaxy recently received the US FDA approval for its ANDA of Cefuroxime Axetil (only for certain dosages).

However, Apotex is unlikely to launch its product due to its pending litigation on patent infringement and marketing injunction filed by original patent holder Glaxo. Apotex is unlikely to enter the market before the end of December this year. Ranbaxy would thus be able to catch up with the peak season sales of the drug, which usually starts from September. Ranbaxy is thus likely to continue with its monopoly status for another 3-5 months. Even after Apotex entry, third generic player is expected only after July'03 and hence the drop in pricing of the drug may not be drastic. Ranbaxy mopped up US$ 38 m of 'Ceftin' sales during the September quarter. The company currently enjoys more than 87% market share of the product. Till date the company has already earned US$ 75 m since its 'Ceftin' launch in March this year. We had earlier expected sales from Cefuroxime Axetil (Ceftin) to touch US$ 90 m in the current year, which needs to be revised upwards considering the extended exclusivity enjoyed by the company.

Ranbaxy (standalone) Revenue Mix- Exports led performance
Particulars 3QFY03 % Growth 9mFY03 % Growth
Domestic        
Formulations 2,361 6.8% 6,532 8.3%
Bulk 172 -43.2% 598 -33.0%
Allied Businesses 302 21.8% 706 8.0%
Sub Total 2,835 2.8% 7,836 3.4%
Exports        
Formulations 4,205 165.1% 9,612 149.7%
Bulk 1,004 -3.0% 3,269 -4.0%
Sub Total 5,209 98.5% 12,881 77.5%
TOTAL 8,044 49.4% 20,717 39.7%

The performance in the domestic market was however lackluster, primarily on account of 43% 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. There has also been apparent drop in growth in domestic formulations business not keeping pace with the industry growth rates. It may be mentioned over here that the company has recently commenced a new Consumer Healthcare division to focus on the fast growing OTC segment in the domestic and international markets. This division is expected to start contributing to revenues from the next quarter.

The research spend of the company is steadily inching ahead, representing more than 6% of the company's sales. Ranbaxy recently received approval for conducting clinical trials for its new anti-asthma molecule in India, for which the company might look at outsourcing opportunities. It was only recently that the company signed 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 500 mg Cipro-D molecule licensed to Bayer AG has completed its clinical trials and 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 3QFY03 9mFY03
Sales 10,464 27,513
Operating Profit 2,714 6,303
Operating Margins (%) 25.9% 22.9%
Net Profit 1,489 4,176
EPS* (annualised) 32.2 30.1

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 50+ products for the US markets now, far ahead of any other Indian generic company. As mentioned earlier, the US geography recorded 217% growth for 3QFY03. Even excluding Ceftin sales, formulations sales in the US registered an impressive 69% 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 565, the stock is trading at 18x FY03E earnings on a consolidated basis. Considering rapid ANDA (Abbreviated New Drug Applications) and expanding export portfolio of the company, Ranbaxy clearly has well laid out infrastructure to lead the lucrative generic opportunity.


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