BackIndustry results favourable; US scrutiny hits Ranbaxy, Sun
Industry results favourable; US scrutiny hits Ranbaxy, Sun
PremiumFair valuation: Ranbaxy’s corporate headquarters in Gurgaon. Ramesh Pathania / Mint
Mumbai / Delhi: The Indian pharmaceutical industry seems to have bounced back from the economic downturn as most leading drug makers posted improved earnings for the quarter ended June. But India’s two large drug makers, Ranbaxy Laboratories Ltd and Sun Pharmaceutical Industries Ltd, were hit by US regulatory actions that crimped their earnings.
The pharma industry—which across the world is considered a defensive sector even during a downturn—reaped the benefits of a pro-generics global market, growing domestic demand and a favourable dollar-rupee exchange rate as global investors put their faith in US treasuries.
An independent market analysis released by business information provider Datamonitor on Tuesday said the number of authorized generics agreements will grow in the US and European markets with increasing convergence between branded and generics companies. Mumbai-based Lupin Ltd on Wednesday reported net profit of Rs140 crore on sales of Rs1,085 crore during the quarter, an increase of 25% over the corresponding period last year. Cipla Ltd’s net profit jumped 73% to Rs241.71 crore for the quarter from Rs140 crore a year ago. Its revenue grew 14% to Rs1,376 crore as against the year ago quarter’s Rs1,207.12 crore.
Sun Pharmaceutical posted an almost 80% drop in net profit to Rs148 crore on revenues of Rs787.5 crore, largely because of a fall in US sales following regulatory action by the US Food and Drug Administration (USFDA) against Caraco Pharmaceutical Laboratories Ltd, its subsidiary there. The country’s largest drug maker by market capitalization also incurred one-time severance costs from layoffs. Sales declined 27% from Rs1,041 crore a year ago.
“Generally the numbers have been in line (with) or slightly better except a couple of companies. The Indian market has done very well for most companies and because it is a higher margin market than others, that has helped margins," said Prashant Nair, a Mumbai-based sector analyst with Citi Investment Research. “Export revenues have been good with the average rupee-dollar (rate) being much better this quarter compared to the same quarter last year."
M.K. Hamid, joint managing director of Cipla, told Mint growth in exports, the right product mix in domestic and international markets, and a favourable currency situation in dollar-dominated markets were the key factors in driving up profits. Cipla’s exports contributed at least 55% of its total revenue. Cipla also posted an increase in other income, which is mainly the pharmaceutical technology it offers to international companies.
Lupin’s executive director Nilesh Gupta told Mint that the company’s aggressive growth in the global generics market was the key contributor to revenue growth for the June quarter. “Though domestic market grew about 22% this quarter, a 42% growth in the Japanese business and a US and Europe combined business growth of 40% actually showed the significantly growing opportunity in the global generic market for Indian companies," he said.
According to Nair, Sun’s results were disappointing because of expectations being unusually high on the street. Sun had pushed excess inventory into the distribution channel in India in the fourth quarter, leading to a fall in first quarter sales.
With sales of Rs1,006.4 crore and operating income of Rs55.6 crore, Ranbaxy still posted a jump in net profit to Rs675.45 crore because of foreign exchange gains and a so-called “fair valuation" of its financial derivatives products. Ranbaxy’s sales, which were down 17.29%, were also affected by a USFDA ban on at least 30 drugs in that market and an indefinite delay in new drug approvals.
Hemant Bakhru, a pharma sector analyst with foreign brokerage CLSA Asia Pacific Markets said “Overall, (drug) companies are getting rid of forex losses and margins are reasonable. So, that is a benefit."
Baroda-based Alembic Ltd, which had a net loss of Rs5 crore for the April-June quarter in 2008, posted a net profit of Rs12 crore on sales of Rs292 crore during the first quarter this year. The company said its generic sales in mainly US and Europe markets crossed Rs100 crore during the quarter.
Drug ingredient maker Hikal Ltd also posted impressive growth in sales and profits during the quarter on the back of large export orders. Mumbai-based RPG Life Sciences Ltd, an RPG group company, posted a 30% increase in net profit at Rs3.75 crore on sales of 39.8 crore.
However, Ahmedabad-based Torrent Pharmaceuticals Ltd posted a 69% drop in net profit at Rs15 crore despite 22% growth in sales at Rs474 crore from Rs388 crore in the year ago quarter. While sales grew on the back of growth in domestic formulations and international business, profit fell because of a Rs53 crore write-off of minimum alternate tax credit entitlement recognized in earlier years.
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