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Ranbaxy: Delivers a sweet pill

Oct 22, 2003

Ranbaxy has announced its 3QFY04 results. On a consolidated basis, the company has posted a topline growth of 14% and a bottomline growth of 25%. For 9mFY04, Ranbaxy has reported a 31% growth in net sales and a 35% rise in net profits. In this context let us make a detailed review of the company’s performance during the quarter.

Results at a glance
(Rs m)3QFY033QFY04Change9mFY039mFY04Change
Net Sales10,65812,11313.7%27,47236,02531.1%
Other Income162541487.5%32938015.5%
Operating expenses8,2349,48815.2%21,62527,57627.5%
Operating Profit (EBDIT)2,4242,6258.3%5,8478,44944.5%
Operating Profit Margin (%)22.7%21.7% 21.3%23.5% 
Interest (net)10961-44.0%432235-45.6%
Depreciation3463768.7%9461,12218.6%
Profit before tax1,9852,44223.0%4,7987,47255.7%
Extra-ordinary Items48103114.6%915252-72.5%
Tax 54467423.9%1,5372,05233.5%
Profit after Tax but before MI1,4891,87125.7%4,1765,67235.8%
Minority Interest (MI)18700.0%327800.0%
Profit after Tax and MI1,4881,86325.2%4,1735,64535.3%
Net profit margin (%)14.0%15.4% 15.2%15.7% 
No. of Shares (m)116.0185.0 116.0185.0 
Diluted earnings per share*32.240.5 30.140.9 
P/E ratio 24.5  24.2 
(* annualised)      

During 3QFY04, company’s dosage formulations sales grew by 12%. This growth was fuelled by revenues from Europe, CIS and Africa, which grew by 46% (as a group) as compared to 3QFY03. In Europe, UK (52% growth), Germany (37%), Poland (123%), Russia (103%) and Rest of Europe (98%) are the key markets in which the company operates. Dosage sales in the domestic and Middle East markets grew by 22%. In the domestic market, the company has managed to outperform the industry growth rates in every month of the quarter. The company now commands a leadership position in high growth statin segment.

In the US market, which at US$ 91 m contributes 37% of Ranbaxy’s global sales, growth rates were impacted due to the entry of generics competition for Cefuroxime Axetil, which was one of the key contributors of revenues in the previous quarters. During the quarter under review, Ranbaxy launched three generic products. Moreover, the company is expected to launch three more branded drugs in 4QFY04. However, the strong growth rates achieved by the company in the above markets was pared by a slump in the revenues from the Asia Pacific and Latin American markets. While Ranbaxy’s bulk drug business also witnessed a respectable 11% growth, its allied businesses, which constitutes of animal healthcare, diagnostics and fine chemicals business, has recorded a 5% drop.

Revenue break-up
(Rs m)3QFY033QFY04Change
Dosage forms
India and Middle East 2,235 2,716 22%
Europe, CIS and Africa 1,361 1,980 46%
Asia Pacific and Latin America 1,118 829 -26%
USA 3,984 4,190 5%
Sub total 8,698 9,714 12%
API 1,118 1,243 11%
Allied Business 340 322 -5%
Other operating income 524 843 61%
Net Sales 10,679 12,123 14%

Although Ranbaxy’s operating margins saw a marginal decline, reduction in interest cost (in view of the debt restructuring exercise undertaken by the company) and a sharp rise in other income and extra-ordinary income has helped Ranbaxy improve its net margins by 140 basis points. While the rise in the other income was due to higher interest income, extra-ordinary income pertained to settlement compensation income received by the company in relation to a patent dispute.

On the R&D front, Ranbaxy’s BPH molecule, RBX-2258, which is out-licensed to Schwarz Pharma, has completed Phase I study. Meanwhile, the company has also received approval to initiate Phase II study in India on its respiratory compound, RBX-7796. Another key positive for the company is the fact that Bayer has received US-FDA approval to market 1 gm dosage form for Cipro in August ’03. As Bayer is the licensing collaborator of Ranbaxy for Cipro, the approval is likely to trigger a milestone payment for the company. During 3QFY04, Ranbaxy received 7 ANDA approvals taking the total number of approvals in FY04 to 20. In all, the company has until now filed more than 100 ANDAs, with 25 awaiting approval.

Ranbaxy has also entered into a drug discovery and clinical development collaboration with GlaxoSmithKline plc (GSK), covering a wide range of therapeutic areas. As per the terms of the agreement, Ranbaxy will conduct early clinical trial on compounds selected by either Ranbaxy or GSK. Going forward, while GSK will have exclusive worldwide rights for the drug, Ranbaxy will have the right to sell the product in India. However, the detailed financial terms of the agreement have not been disclosed.

At Rs 990, Ranbaxy is trading at a P/E of 24x its annualised 9mFY04 earnings. The strong growth potential in the generics segment combined with its focus on developing a strong NCE and ANDA pipeline augur well for the company going forward. This coupled with the fact that Ranbaxy is likely to successfully meet its long-term target of achieving US$ 1 bn sales by 2005 in this year itself, we remain optimistic about the long-term prospects of the company.

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