With the company not being able to sell a part of its generics portfolio in the US market, revenues and profits could suffer.
India’s biggest drug maker, the Rs 6,692 crore Ranbaxy Laboratories, will not be able to sell around 30 generic medicines, made at its plants in Paonta Sahib and Dewas, in the US markets for some time. While the exact figures are not available, these drugs are estimated to account for around 30- 40 per cent of sales to the US market and around 10 per cent of total sales.
That is not insignificant and, therefore, could hurt the company’s revenues and profits in the current year. One of the products that may need to be withdrawn is Sotret, which has a fairly large share in the US market and that is a big blow for the company.
Operating margins on generics can be fairly lucrative, at around 15-16 per cent, though margins on products sold at home can be higher. What really helps drug firms such as Ranbaxy is permission for a generic to be sold exclusively in a market for a certain period of time. Because when the drug is launched, revenues go up sharply.
Ranbaxy’s sales to the US market in CY07 are around Rs 1,600 crore and are expected to grow by at least 15-20 per cent this year. The company sells around 130 products in that market. In the June 2008 quarter, sales in the US and Canadian markets grew 18 per cent, the highest growth posted amongst all geographies. Besides, the company already has permission to market several products exclusively in the US. Among these are Velacyclovir (anti-herpes), which it should launch in 2009, Tamsulosin (alpha-blocker) planned for 2010 and Sumatriptan (anti-migraine).
It hasn’t been a particularly good year for Ranbaxy so far. Gross revenues were up by a disappointing 13 per cent to Rs 1,830 crore in the June 2008 quarter even though the drug major did brisk business in the US and Canada, despite a high base effect. The company also fared well in some emerging markets though sales were not as strong in the UK and the Romanian markets. However, the firm’s net profit fell 91 per cent due to forex losses and even after adjusting for translational losses, the profit after tax at Rs 161 crore was flat y-o-y. Analysts estimate that adjusting for translational gains, the operating profit margins for the quarter too were flat at around 10 per cent.
In the first six months of CY08, Ranbaxy’s top line grew 13 per cent while the operating margins expanded by 325 basis points to 16 per cent. The management believes that sales will grow by about 18-20 per cent in CY08 with operating margins in the range of 15-17 per cent. Analysts had pencilled in revenues in the region of Rs 7,900 crore for CY08, a 20 per cent growth over last year.
However, that seems unlikely now with the ban on the sales of so many products. Net profits for the firm, which were earlier expected to come off to around Rs 550 crore from Rs 775 crore in CY07, could fall further. There are also concerns about the potential mark-to-market losses on outstanding forex contracts. The Ranbaxy stock fell 10 per cent in intra-day trades to Rs 362 though it recovered at close to Rs 379, a decline of 6.6 per cent over Tuesday. At the current price, the stock trades at around 24 times estimated CY08 earnings and is expensive.
