Ranbaxy's September quarter results were below Street estimates. Its bottom line was hit harder due to losses on foreign currency loans (Rs 251 crore) and mark-to-market loss on derivative contracts (Rs 400 crore), led by rupee depreciation. Adjusted for forex losses, profits at Rs 156 crore fell 13.2 per cent y-o-y. While revenues from US operations fell for the fourth consecutive quarter, domestic growth too came in the single-digit and below industry growth for the second consecutive quarter, disappointing the market. The stock has lost about nine per cent post results and closed at Rs 466 on Tuesday
All eyes are now set on November 30, the date for the launch of Lipitor generics in the US that will provide the much-needed boost to Ranbaxy's financials. Though the Street has factored the launch, analysts feel the more important question is the resolution of USFDA issues related to its Indian plants at minimal penalty. If the penalty works out on the higher side, it could offset the gains provided by the Lipitor launch.
Also, Sushant Dalmia at PINC observes that any further delay in resolution of USFDA and Department of Justice issues would hurt their and the Street's base operating margin assumptions for CY12, of between 11-15 per cent and pose downward risk to the estimates.
| HEALTHY OUTLOOK SO FAR | |||
| In Rs crore | Q3’CY11 | CY2011E | CY2012E |
| Net sales | 2,023 | 9,766 | 11,896 |
| Y-o-Y chg (%) | 7.7 | 14.4 | 21.8 |
| Ebitda | 174 | 1,860 | 2,431 |
| Ebitda (%) | 8.3 | 19.0 | 20.4 |
| Net profit | -465 | 1,315 | 1,721 |
| Y-o-Y chg (%) | PTL | 27.1 | 30.9 |
| EPS (Rs) | -11.0 | 31.3 | 40.9 |
| PE (x) | NA | 15.2 | 11.6 |
| E: Estimates PTL: Profit to loss Source: CapitaLine Plus, Bloomberg, analyst reports | |||
SLOWER DOMESTIC GROWTH
Domestic sales growth at six and seven per cent in the June and September quarters, respectively, is almost half of that seen in the December 2010 and March 2011 quarters. The growth that was earlier boosted by Project Viraat (increased sales force for better penetration) was hit due to lower growth in the anti-infective segment, which contributes 30 per cent to domestic revenues according to the analysts at HSBC. While over-the-counter products (Volini, Revital) grew well, Emkay Global's analysts indicate that growth was lower in the Gastro segment, too.
EUROPE, EMS AND APIS PROVIDE IMPETUS
Most of the growth came from non-US markets. Emerging markets contributed 60 per cent to overall revenues CIS countries, revenues (Rs 145.6 crore) saw a smart 22 per cent growth, while African sales (Rs 201 crore) grew a good 20 per cent. European sales (Rs 330.8 crore) also grew 21 per cent y-o-y, supported by generic launches. The active pharmaceutical ingredients segment (up 52 per cent y-o-y to Rs 162 crore) also got a boost as Nexium API supplies to Europe, since May 2009 due to US FDA issues, resumed earlier this year.
LIPITOR LAUNCH CRITICAL FOR US SALES GROWTH
The US base business at $84 million shrunk two per cent y-o-y and 12 per cent sequentially. Launch of the Alzheimer's drug generics Aricept’s on an exclusivity basis in December 2010 failed to provide the same impetus to US sales in 2011 as was provided by the Valtrex (valacyclovir) generics in 2010.
In this backdrop, the launch of a Lipitor generics in the December quarter is being eagerly awaited, with analysts anticipating it to earn $400-550 million revenues. Analysts at Emkay expect Ranbaxy to report 21 per cent compounded annual growth rate in base business revenues over CY10-12. However, looking at the pending resolution of FDA issues related to Ranbaxy's Paonta Sahib and Dewas plants, some analysts view the launch with scepticism. If Ranbaxy does not get the final approval, it may opt for a tie-up with other generic companies for distributing its Lipitor version in the US, which will dilute the gains for Ranbaxy. The management's confidence, however, still shows the launch is on schedule and may be from its US facilities.
While the positives from the launch remain factored in the stock, in case Ranbaxy fails to launch the product on its own or penalties for resolution of FDA issues come higher than expected, it could have a negative rub-off on the stock. Analysts, thus, remain cautious, with only 35 per cent having a 'buy' call (25 per cent have 'hold', and the rest 'sell') on the stock, according to Bloomberg estimates.
