Ranbaxy: Lipitor strengthens base business - Views on News from Equitymaster

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Ranbaxy: Lipitor strengthens base business

Nov 9, 2012

Ranbaxy has announced its 3QCY12 results. The company has reported 31% YoY growth in sales and a 262% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 31% YoY during the quarter led by growth in both its domestic and international business, and currency depreciation.
  • Operating margins improve dramatically by 9.2% due to improvement in base business, forex gain and Actos exclusivity.
  • Bottomline increases by 262% YoY during 3QCY12 due to forex gain in its derivative position.

Financial performance: A snapshot
(Rs m) 3QCY11 3QCY12 Change 9MCY11 9MCY12 Change
Net sales 20,232 26,514 31.0% 62,179 95,208 53.1%
Operating Income 802 397 -50.6% 1,853 1,664 -10.2%
Expenditure 19,699 22,731 15.4% 55,976 79,172 41.4%
Operating profit (EBDITA) 1,336 4,179 212.9% 8,056 17,700 119.7%
EBDITA margin (%) 6.6% 15.8% 9.2% 13.0% 18.6%  
Other income 210 622 196.2% 896 1,742 94.4%
Interest (net) 1,512 (156)   2,155 1,680 -22.1%
Depreciation 788 816 3.6% 2,259 2,397 6.1%
Exceptional gain/(loss) (3,624) 3,933   (2,459) 1,386  
Profit before tax (4,378) 8,073   2,079 16,751 705.7%
Tax 256 542 111.5% 1,226 2,598 111.9%
Profit after tax/(loss) (4,634) 7,532   853 14,153 1559.1%
Net profit margin (%) -22.9% 28.4%   1.4% 14.9%  
No. of shares (m)         421.0  
Diluted base earnings per share (Rs)         32.2  
Price to earnings ratio (x)*         16.6  
*based on trailing 12 months earnings

What has driven performance in 3QCY12?
  • Ranbaxy's topline grew by 31% YoY during the quarter led by growth in both its domestic and international business, and currency depreciation. In dollar terms growth was at 8% to US$ 480 m from US$ 442 m.

  • Domestic business (includes consumer health and Sri-Lanka) grew by 13% YoY. Growth was on the back of improvement in the chronic segment. The company continues to face challenges in the acute segment.

  • Revenues from the US business grew by 62%, on the back of Lipitor and Caduet getting added to its US base generics business and the launch of Actos generics. The launch was an authorized generics product and the company has captured 25% of the market share in 1.5 months of launch. We assume revenues from Actos to be in the range US $25-$30 m, based on the given market share. The company expects its base business to witness revenue run rate of US$ 100 m per quarter going forward. Further, Ranbaxy also remained confident of launching the generic version of Diovan as soon as it clears USFDA approval. Other products viz Tricor (expected launch in CY13), Ximino (expected launch in CY13), Absorica (expected launch in CY12), Valcyte, and Diovan remain the key catalysts for the company's revenues from the US.

  • Europe grew by 30% on the back of stronger growth from Germany, Italy and UK. Other international geographies witnessed subdued growth due to adverse currency rate movement, supply constraints, and supply disruptions in few geographies.

  • Operating margins improved dramatically by 9.2% due to forex gain, improvement in the base business and Actos exclusivity. As per the management, base margins were stronger on back of Lipitor and Caduet getting added to the base business. Excluding revenues from Actos exclusivity, we believe the current EBITDA base margins to be in the range of 11%-12%.

  • Bottomline increased by 262% YoY during 3QCY12 due to forex gain in its derivative position in the current quarter against a loss in the 3QCY11.

  • Ranbaxy has set up a greenfield facility in Malaysia; this will help it to triple the existing capacity in the focus markets. The company is also looking to strengthen manufacturing in emerging markets. As on date, its derivative position is US$ 1.27 bn, maturing at the rate of US$ 40 m per month. Total debt as on date stands at US$ 755 m and cash at US$ 778 m.

What to expect?
At the current price of Rs 544, the stock is trading at a price to earnings multiple of 16.8 times our estimated base CY14 earnings. With the inclusion of Lipitor and Caduet TO the base business, Ranbaxy expects better base revenues from the US. The management remained confident for launching its products with exclusivity. The company is progressing over the consent decree as well. Although it faces some pain in the emerging markets due to currency moment, this is not likely to be long term phenomenon. As the company is not able to fetch approvals of some products on time due to its manufacturing issues, solving its issues with the US FDA will be the key in bolstering the company's growth going forward. At this point of time we have a HOLD rating on the stock at the current price levels.

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