• MARCH 24, 2009

Are Ranbaxy' woes over?

Light at the end of the tunnel for Ranbaxy
Ranbaxy must be breathing a sigh of relief. The UK and Australian regulatory authorities have given a clean chit to the company's Paonta Sahib facilities after the same was subject to investigation last year. This very facility had come under the scanner of the US FDA, which found manufacturing deficiencies in the plant. As a result, production at this site had been halted and an import ban on 30 drugs was imposed. This raised concerns among other countries to which Ranbaxy exports as well (UK and Australia being among them), thereby prompting them to conduct investigations on their own.

Hence, the green signal from these countries is like a beacon in the sky for the beleaguered pharma company. That does not mean that it can export drugs from this plant in the US as yet. The issue with the US FDA is still to be resolved. And while the actions of one country does not necessarily influence that of the other, it certainly raises some hope that the standoff between Ranbaxy and the US FDA translates into some kind of a favourable resolution for the former.

Indian banks to receive a shot in the arm
Indian banks can pat themselves on their backs for not facing the kind of trouble that their Western counterparts are now facing. While the US and the European banking industry has burnt its fingers badly in the subprime crisis, RBI's prudent norms coupled with the under development of securitization in India, spared India's banks the ills that are afflicting the banks of the developed world. Despite that, India has not been completely immune from the crisis that has engulfed the global economy and the credit crunch that has hindered lending in the US and Europe is having some impact on the lending activities of Indian banks too.

Thus, as reported in the International Herald Tribune (IHT), the country's lenders are expected to raise several billion dollars in fresh equity over the next few quarters as bad debts rise and the Indian government pressures them to increase lending. Especially banks that have a capital adequacy ratio of less than 9% are coming under the government scanner. At least 17 state-run banks have a Tier 1 ratio of less than 7.5%, making them prime candidates for an equity infusion.

IHT further states from a report obtained by Reuters that Indian state-run banks will most likely raise US$ 4 bn to US$ 6 bn in the coming months. What also makes the case for additional capital all the more compelling is the estimation that Indian banks' gross bad loans will rise to 6.1% by 2011. Thus, while India on the whole is still better off than its global peers, its banks, nevertheless, will have to receive a shot in the arm if lending has to be spurred.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407