Ranbaxy: Tough times

Currency rise yet again plays spoilsport in Sept quarter.

A surging rupee on a y-o-y basis has restricted growth for large exporters such as Ranbaxy in the September 2007 quarter.

As a result, Ranbaxy's net sales improved merely 0.9 per cent in rupee terms (15 per cent in dollar terms) in the September 2007 quarter.

However, its other operating income amounted to Rs 131.6 crore in Q3 CY07 compared with a negative Rs 18.4 crore in the previous year.

The company's other operating income includes mainly export benefits, forex gains or losses (other than those relating to foreign currency borrowings) and share of revenue from Bayer for ciprofloxacin.

Hence, its operating profit expanded 14.6 per cent to Rs 283.1 crore in the September quarter, while its total operational income (net sales plus other operating income) grew 10.3 per cent to Rs 1773 crore.

Ranbaxy's operating profit margin also improved 60 basis points to 16 per cent in Q3 CY07. In the June 2007 quarter too, operating profit margin grew 110 basis points to 12.1 per cent.

Meanwhile, in the September 2007 quarter, Ranbaxy's sales in the key US market were $102 million (approximately Rs 400 crore), a growth of 7 per cent. The company has highlighted improved market share in the dermatology segment in the American market.

Also, analysts highlight that the company leveraged growth accruing from the earlier launch of pravastatin 80 mg tablets in the US, with a 180-day marketing exclusivity from June 2007.

In European markets, sales were $78 million approximately Rs 310 crore) in Q3 CY07, a growth of 8 per cent.

However, in emerging markets, the company was able to record considerably higher sales growth in Q3 - for instance, sales in India grew by 15 per cent, while in Africa they jumped 34 per cent.

Ranbaxy, like Sun Pharma and Dr Reddy's, is now attempting to keep its R&D costs in check via its board's in-principle approval to demerge the drug discovery research set-up into a separate company.

However, for the company's nine-month period ended September 2007, its R&D expenditure as a percentage of total operational income declined 40 basis points y-o-y to 5.65 per cent.

Over the next few quarters, growth for the company is also expected from authorised generics sales for the product Isoptin (medication for treating heart and blood pressure problems).

At Rs 416, the stock trades at 25 times estimated CY07 earnings and 20 times CY08 earnings, which is reasonable.