On the ball

BS Compass

Ranbaxy's third-quarter results were in line with expectations, with topline growing at 11 per cent on a consolidated basis compared with the corresponding period last year.

This was contributed by a 37 per cent increase in sales in the US market (accounting for 42 per cent of global sales), a 52 per cent rise in sales in the UK market and nearly 100 per cent growth in the other European markets.

Even in the domestic market, compared with declining sales in the first eight months for antibiotics, Ranbaxy was able to report an increase in domestic sales by 13 per cent.

Despite the growth in topline, Ranbaxy's operating margins on a consolidated basis were 23 per cent compared to standalone operating margins of 27 per cent for the quarter.

This was mainly due to the near 85 per cent fall in prices for its major generic product cefuroxime axetil in the US market. Also, its other major product in the US market, ceftin, saw a drop in sales to $9 million compared to $38 million.

This was due to the fact that last year, Ranbaxy had the benefit of being the only player in the segment. But despite the pricing pressure, Ranbaxy's consolidated net profits for the quarter grew 25 per cent compared to the same period last year.

That's on account of three main reasons: First, the other operating income component saw a 61 per cent jump. According to the company the main contributors to this were forex gains of Rs 25 crore and export benefits of Rs 50 crore.

Secondly, the company received a milestone payment of Rs 17 crore from Bayer. Since Cipro OD 1000 mg was launched in mid-September, the December quarter results will most probably include another royalty payment from Bayer.

Instead of a lump-sum royalty payment, Ranbaxy will now receive royalty payments at regular quarterly intervals subject to sales by Bayer. Thirdly, Ranbaxy received an extraordinary income of Rs 10 crore on account of a patent dispute.

The main revenue driver for Ranbaxy going forward is the exclusivity to Bayer for extending the patent period on Cipro XR, which expires in December 2003. If the exclusivity is not granted, there could be a significant erosion in prices and margins on account of Cipro XR.

Bajaj Auto

With regular monthly updates on sales, Bajaj Auto's topline growth is hardly surprising. The company had long ago proved that its dismal first quarter growth was completely the result of one-off factors such as the transporters' strike and the uncertainty on VAT, and the Q2 results amply bear that out.

The topline is up 20.6 per cent, year-on-year. Motorcycle sales have been buoyant , growing at well above the industry average. The Caliber 115 and the Wind 125 have been clear successes, and the company has been steadily gaining market share.

Importantly for margins, the company's products in the executive and premium segments contributed 64 per cent of its total motorcycle portfolio, compared to 40 per cent a year ago.

Three-wheeler sales too have been robust, both domestically as well as in exports. The recently launched goods carrier has been doing well, and Bajaj continues to dominate the market.

Scooters, however, are another matter altogether, with the September figures showing that Bajaj's scooter sales fell 17 per cent on a year-on-year basis, with further pressure due to Honda Motorcycle and Scooter India's entry into the 150 cc plus geared segment.

Although other income has gone up substantially on a y-o-y basis, there's not much of a difference between other income in Q1 and in the second quarter.

Although gross profits are up 38 per cent, once the effect of other income is stripped out, margins seem to be under some pressure, despite the rise in volumes and the move up the value chain in motorcycles.

Steel and rubber prices have moved up sharply. Going forward, the good monsoons will help demand growth. Reviving growth in scooters is now becoming a priority with new models lined up for next year. Low interest rates and export plans to new areas will also drive volumes.

With contributions by Sameer Ranade