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Ranbaxy: Awaiting clarity over Lipitor - Views on News from Equitymaster
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Ranbaxy: Awaiting clarity over Lipitor
Nov 22, 2011

Ranbaxy has declared third quarter results for calendar year 2011-2012 (3QCY11). The company has reported an 8.7% YoY growth in net sales and a net loss of Rs 4.6 bn this quarter. Here is our analysis of the results.

Performance summary
  • Net sales increase by 8.7% YoY, adversely affected by decline in the US generics business and weak domestic market growth.
  • Operating margins (EBITDA) increase by 110 bps (1.1%) to 8.3% aided by lower other operating expenses.
  • Net loss in 3QCY11 stands at Rs 4.6 bn as against net profits of Rs 3 bn in 3QCY10 on account of forex losses on loans.

Financial performance: A snapshot
(Rs m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net sales 19,284 20,955 8.7% 68,627 63,696 -7.2%
Expenditure 17,897 19,214 7.4% 52,450 56,107 7.0%
Operating profit (EBIDTA) 1,386 1,741 25.6% 16,177 7,589 -53.1%
EBDITA margin (%) 7.2% 8.3%   23.6% 11.9%  
Other income 932 1,020   5,693 2,708  
Depreciation 987 788 -20.2% 2,687 2,259 -15.9%
Interest 110 153   469 464  
Profit before tax 1,221 1,820 49.0% 18,714 7,575 -59.5%
Tax 448 256   4,969 1,223  
Exceptional Gain / (Loss) 1,857 (3,624)   1,098 (2,486)  
Forex (Gain) / Loss (1,097) 2,510   (1,237) 2,920  
Minority Interest (649) (77)   (137) (116)  
Profit after tax/(loss) 3,079 (4,646)   15,942 830  
Net profit margin (%) 16.0% -22.2%   23.2% 1.3%  
No. of shares (m) 421 421   421 421  
Earnings per share (Rs) 7 (11)   38 2  
Price to earnings ratio (x)*   32.5        
* On a trailing 12 months basis

What has driven performance in 3QCY11?
  • Ranbaxy's net sales grew by a lukewarm 8.7% YoY, adversely affected by the decline in the US generics business and weak domestic market growth. The US business showed a 3% YoY de-growth in dollar terms on account of price erosion in some of its products. There were no First-to-File products in this quarter from the US business. The Latin America business also de-grew by 32% in dollar terms due to product supply problems in that region. The domestic sales growth of 6% YoY was lower than that of the industry. The company launched 'Volini Duo' which is marketed as India's first approved two-in-one pain killer. The European region grew by 21% to US$ 72 m led by a strong growth in Romania.

  • With respect to its issues with the US FDA, the company is negotiating with the Department of Justice and US FDA for a comprehensive settlement of all the involved issues.

  • The operating margins (EBITDA) increased by 110 bps (1.1%) to 8.3% aided by lower other operating expenses which decreased by 1.9% during the quarter.

  • Net loss in 3QCY11 stood at Rs 4.6 bn as against net profits of Rs 3 bn in 3QCY10 on account of forex losses on loans.

What to expect?
At the current price of Rs 449, the stock is trading at a price to earnings multiple of 14.9 times our estimated CY13 earnings. As far as the US FDA issues are concerned, the company is in the process of negotiating all the issues and come to a comprehensive settlement. But the uncertainty with respect to the same still remains. Part of the earnings growth for the company will come from FTF opportunities, which partly depends on the resolution of the FDA issues. Ranbaxy is still awaiting US FDA approval for its generic Lipitor and the management is ready with the facilities to launch the drug from 30 November 2011. Accounting for uncertainties on the US FDA front, current valuations do not leave much on the table for investors.

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