New Delhi: The earnings of Indian drug makers are expected to be a mixed bag in the April-June quarter with two of the biggest companies, Ranbaxy Laboratories Ltd and Dr Reddy’s Laboratories Ltd, expected to see declines in profit even as the likes of Sun Pharmaceuticals Industries Ltd are slated to see a profit surge.
However, analysts, who foresee a revenue growth of 24-30% for the sector and about 24% increase in the net profits from the same quarter in 2007, note that year-ago factors and non-operational issues make the results of individual variations, this time around, not hugely significant.
“Ranbaxy’s profit is declining because of mark-to-market losses occurring due to rupee depreciation,” said Prashant Vaishampayan, an analyst with Kotak Securities Ltd. He estimates losses from currency fluctuations at about Rs150 crore and estimates Ranbaxy will report a quarterly net loss of some Rs7 crore.
Based on a Mint review of five estimates, the consensus estimate is for Ranbaxy to post revenues of Rs1,901.3 crore, an increase of 18% from year-ago period with net profits set to fall by 69% to about Rs88.25 crore.
The Indian rupee depreciated by 6.9% against the US dollar during the quarter, compared to 1% depreciation in the previous two quarters. While this will boost the export revenue of Indian drug companies, losses will also be incurred on foreign currency denominated debt, wrote Prabhudas Liladhar Pvt. Ltd’s analyst Ranjit Kapadia. Weakening of the rupee had “affected importers, who were benefited in the past due to the rapid appreciation of the rupee”, his report said. By 30 June 2007, the rupee had appreciated by 8% against the dollar and 6.3% against the Euro from the beginning of the year.
Vaishampayan also explained that the results of Sun Pharma — consensus estimates predict a profit of Rs571.04 crore, a jump of more than 151% — are significantly influenced by a market exclusivity it obtained in the US from selling generic versions of Protonix, Ethyol and Trileptal, medicines which had a combined annual sales of $3 billion (Rs12,900 crore) in their patented and branded versions.
Biocon Ltd, with an estimated growth of 27% in revenues and 20.62% in profits, could also have benefited from cheaper rupee although last year’s results for the Bangalore-based biotech drug company’s included its since sold enzymes business.
Dr Reddy’s 2006 buy of Betapharm Arzneimittel GmbH is expected to continue to drag down the firm’s net profit, which is expected to decline some 16% in the June quarter.
Piramal Healthcare Ltd, formerly known as Nicholas Piramal, has hived off its research unit into a separate company implying a significant cost component would be deducted from its book in this quarter, making the bottomline look better than it would otherwise have been.
While rising crude oil prices and costlier raw materials have put pressure on margins for Indian drug makers, it has been cushioned in part by rupee depreciation that has increased export earnings. In his report, Hitesh Kuvelkar, an associate director-research with First Global Securities Ltd, calculates that rising oil prices and raw material supply constraints from China “are likely to result in an increase of 1-1.5% in input cost as a percentage of total revenues”.