Robust sales, strong fundamentals to keep their future profits buoyant, say analysts.
Provisioning for foreign exchange losses by the country’s leading drug firms such as Ranbaxy Laboratories, Aurobindo Pharma, Jubilant Organosys and Biocon belies the underlying health of the drug-makers. About 70 per cent of the pharma companies have seen their first-quarter profits eroding as a result of the provisioning.
Drug-makers across the group posted a 23 per cent jump in net sales in the three months ended June 2008 and the outlook for the future is also robust, cite analysts.
They predict that the current and coming quarters would be better for companies, unless major dollar-rupee fluctuations affect the performance of drug companies.
“Except for companies such as Alembic, which posted actual losses, the losses for companies such as Ranbaxy and Orchid are only notional. The health of leading pharmaceutical companies are good and the fundamentals are strong,” said Sarabjit Kaur Nagra, vice-president (research), Angel Broking.
A Citigroup equity research study notes that the Indian pharma industry will not be affected much by global or domestic slowdown since drugs are likely to be one of the categories where demand is inelastic and consumption is least affected by any slump. Further, Indian companies have the ability of lowering cost without compromising on quality.
During the current quarter, Ranbaxy is likely to be benefited from the launch of omeprazole 40-mg capsules in the US as an authorised generic under an agreement with Aztra Zenaca and launch of amoldipine tablets in the Japanese market.
Similarly, prospects for Aurobindo Pharma are also good, considering the day-one launch of generic equivalent of Merck & Co’s Fosamax tablets for osteoporosis and antibiotic cefazolin injection.
While contract manufacturing specialist Jubilant’s acquisition of Canadian speciality drug company Draxis Health will boost its revenues, Biocon’s new drugs, such as nano-tech-based Abraxane, are likely to help the company post better results during the quarter.
B&K Research notes that while Biocon and Alembic’s long-term growth appears encouraging, concerns of a leveraged balance sheet and FCCB conversion remain for Aurobindo Pharma and that could beckon beaten down valuations.
Orchid is also likely to be a major gainer in the coming quarters, thanks to its strong presence in sterile injectibles and a track record of getting a good market share in key products. The firm is also likely to get a good upside from the possible generic launch of Wyeth’s Tazo-pip, an anti-bacterial drug to treat infections, which has big sales in the US market.
While companies such as Alembic, Orchid, Shasun and Strides Arcolab had posted net losses during the first quarter ended June 2008, net profits of companies such as Ranbaxy, Aurobindo, Jubilant organosys and Biocon eroded by over 70 per cent. It is estimated that leading drug companies have lost over Rs 600 crore in foreign exchange transactions during the quarter.
Analysts attribute this to the new mandatory accounting rules of providing for forex and mark-to-market losses based on the rupee at close of every quarter and opine that this does not actually reflect the operational health of these companies.
“During the last quarter, the rupee had fallen by 6.9 per cent and this was the main reason for higher net sales of most of these companies, which also posted good profits. However, when they accounted for the receivables from overseas subsidiaries, profits were affected on forex transactions,” said Ranjit Kapadia, head of research (Pharma), Prabhudas Liladhar.
More than 50 per cent of the revenues of most of the leading drug-makers come from overseas markets and when the rupee weakens against the dollar, revenues will go up, he noted.
Ranbaxy suffered a 91.3 per cent dip in net profit due to a forex loss of Rs 193 crore, despite a 13 per cent increase in net sales. Hyderabad-based Aurobindo Pharma, which suffered a decline of 73 per cent in net profit due to forex losses of Rs 53.71 crore, posted a 12.9 per cent increase in net sales.
A forex loss of Rs 58.80 crore on foreign currency convertible bonds (FCCBs) caused Orchid Chemicals and Pharmaceuticals to post a consolidated loss of Rs 33.95 crore during the first quarter as against a net profit of Rs 48.59 crore in the corresponding period of the last year. The heavy losses are despite an increase in net sales, which went up by 24.2 per cent to Rs 309.93 crore.
Baroda-based Alembic had a foreign exchange loss of Rs 10.49 crore, which resulted in a net loss of Rs 4.70 crore as against a net profit of Rs 17.04 crore in the corresponding period of the last year.
However, its net sales went up sharply by 32.8 per cent to Rs 229.34 crore from Rs 172.73 crore.
Exchange losses and phenomenal increase in input prices caused Chennai-based Shasun Chemicals to post a consolidated net loss of Rs 31.53 crore, as against a net profit of Rs 4.88 crore. Against the trend, its net sales declined by 22.4 per cent to Rs 155.11 crore from Rs 199.93 crore.
