• APRIL 11, 2002

Ranbaxy: Making a global mark

Ranbaxy is expected to declare encouraging results for the quarter ended March'02. With US$ 750 m global revenues expected in the current year, it seems well on its way to become a billion dollar company by 2004. Collaborative marketing and research seem to be the new growth mantra for Ranbaxy.

(Rs m) 1QFY02 1QFY03E % Change
Sales 4,457 5,860 31.5%
Operating Profit (EBDIT) 476 955 100.6%
Operating Profit Margin (%) 10.7% 16.3%  
Profit before Tax 381 774 103.1%
Extraordinary Income 0 487  
Tax 40 128 219.3%
Profit after Tax/(Loss) 341 1,133 232.3%
Net profit margin (%) 7.7% 19.3%  
No. of Shares (eoy) (m) 116 116  
Diluted Earnings per share* 11.8 22.3  
(*- excl. extra-ordinary income on a standalone basis)

Ranbaxy is clearly leveraging the marketing infrastructure it has created over the years. During the last couple of months, the company has identified several joint marketing opportunities, especially in the overseas market. Apart from providing a boost to the revenues, these joint deals are slowly and steadily capturing a larger store shelf and consequently, higher bargaining power through wider product offerings for the overseas market.

Ranbaxy now has almost 50 approved products for the US markets, with 3 of its products logging US$ 10 m+ revenues last year. Apart from such collaborative marketing deals, Ranbaxy intends to enter into collaborative projects for biogenerics from a research and marketing perspective. It is also exploring alliance partnership opportunities in the OTC / herbal medicines segment. Ranbaxy intends to commit only a small portion of incremental investments in building manufacturing facilities. The company is now successfully creating intellectual properties banking on its brand and unlocking value from the marketing infrastructure it has struggled hard to create over the years. The international operations of the company has already achieved break-even last year with US$ 7m profits. This was mainly driven by the profitability of its US operations. The profit contribution from the international operations would rise as more subsidiaries achieve breakeven.

It may be recalled that the company recently received FDA approval for marketing Cefuroxime Axetil tablets in the US markets after a prolonged legal battle. Ceftum (generic Cefuroxime) is a molecule with a market size of US$ 400 m. Though the approval doesn’t ensure six-month marketing exclusivity for Ranbaxy, the only generic competitor (Apotex) is atleast 3-4 months behind. The market for the drug is expected to be a duopoly atleast for a year.

The company has already launched the drug at about 30% price discount to GSK's Ceftin. The company has issued a revenue guidance of US$ 50 m in FY02 from sales of this drug. Ranbaxy might record aggressive sales numbers from Cefuroxime in the current quarter on the back of stocking up by distributors. On a conservative basis we have assumed US$ 8.3 m revenues in the current quarter.

While sales is expected to improve by around 32%, PBT is likely to record a triple digit growth rate. Operating margins are expected to jump sharply on the back of high margin 'Ceftin' sales as also rising contribution of exports to total revenues. Exports are likely to contribute more than 58% to the total revenues of the company. Ranbaxy is also likely to record an extra-ordinary revenue of US$10 m, which it received as compensation from Eli Lilly for the termination of its strategic alliance for multi source generic products.

Rs m 1QFY02 1QFY03E % Change
Domestic Sales 2,184 2,387 9.3%
Export Sales 2,273 3,473 52.8%
Total Sales 4,457 5,860 31.5%

On the research front, 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. There is also a possibility of licensing deal for its BPH molecule, RBX-2258 (Phase II in India) in the current quarter given that the company is in advanced negotiations stage with several MNCs. However, on a conservative basis, we have not factored in any revenues from outlicensing deal.

On a consolidated basis, we expect Ranbaxy to log an EPS of Rs 35.4 for the current year (FY03). At the current market price of Rs 870, the stock trades at 25x its FY03 (Dec'02) and 22x its FY04 (Dec'03) earnings expectations.

Particulars FY03E FY04E
Consolidated EPS (Rs.) 35.4 39.2
P/e (x) 24.6 22.2

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