New Delhi: India’s biggest pharmaceutical company by revenue, Ranbaxy Laboratories Ltd, has pared its operations in Europe, where it had been forced to cut product prices to cope with intense competition and posted a steep decline in revenue.
The company, a subsidiary of Japan’s third largest drug maker Daiichi Sankyo Co. Ltd, disclosed the move in a conference call on Friday with analysts following the announcement of its results for the first quarter that ended on 31 March.
Pulling back: Malvinder Singh. Harikrishna Katragadda / Mint
Ranbaxy, unlike most Indian companies, follows a January-December accounting year.
The company’s European revenue for the first quarter contracted 31% to Rs283 crore, compared with Rs329 crore a year ago. In the fourth quarter of 2008, Ranbaxy’s revenue from the continent stood at Rs362 crore.
In France, the UK and Germany, the company recorded sales of Rs122.4 crore in the March quarter, a decline of 8% from the comparable three months of 2008. In the December quarter, or the fourth of 2008, the sales in the three countries were Rs163.2 crore.
In the March quarter, the drug maker’s revenue in the US also fell by 31%, largely due to a ban by the US food and drug administration in September on the company sourcing 30 drugs into that country from its Paonta Sahib, Himachal Pradesh, and Dewas, Madhya Pradesh plants.
For the quarter gone by, Ranbaxy’s global sales stood at Rs1,560 crore, a decline of 4% from the year-ago quarter. Ranbaxy reported a net loss of Rs761 crore for the quarter, partly dragged down by foreign exchange-related losses.
“The only areas that we have significant de-growth, and most of it is planned, is in Europe because we did decide that in Europe we would rather be happier with a more bottom-line approach rather than going for volumes,” said Malvinder Mohan Singh, chairman and managing director of Ranbaxy, in the conference call.
Singh told analysts that over the past three years, in the major markets of the UK, France, Germany, Italy and Poland, the company had barely managed to break even because of significant price erosion and competition.
Previously, Ranbaxy was trying to win a certain level of volume and business in the region in order to cover those overheads. However, the strategy didn’t work, and the company’s European sales continued to decline.
Singh added that in Europe, the company was almost in a position that the more it sold, the more it seemed to be in a loss, because of price declines in many markets.
“The UK, for example. We have actually cut back in the UK. Our strength in the UK is today half. We have given up one office, for example. What we don’t want is Europe to bleed, Europe was bleeding,” he added.
“So, we took a conscious decision that in Europe probably the right play is not volume,” Singh said.
In the last quarter of the previous year, the company had said that sales in Europe were affected by difficult market conditions and the impact of currency depreciation in some countries. For the first quarter of this fiscal, the company in a press release blamed “difficult and uncertain market conditions prevailing in several markets… In certain markets, the product portfolio was rationalized with a focus on profitability, resulting in some loss of sales.”
An analyst said the company’s move could be positive if seen from a near-term or medium-term perspective.
“I think it is a reasonable move under the circumstances, given that they have many other issues to tackle right now,” he said on condition of anonymity because he isn’t authorized to speak to the media. “So, in the near to medium term, they would be better focusing on the emerging markets but in the long term, Ranbaxy’s strength has always been (its) ability to be present across multiple markets. This would help if the overall drug demand goes up but it will have to be seen how quickly they will be able to get back in the markets.”
Singh, on his part, is optimistic that the decision will help the company reduce losses in Europe. “We are very trim in Germany and UK, and (that’s) the reason we’ll never be now in a loss situation,” he said. “Let’s see what happens at the end of 2009, but the key was to stop bleeding, and I think we’ll be not bleeding, and that helps us.”
On Friday, shares of the company fell 2.4% at close to Rs175.75 on the Bombay Stock Exchange, whose benchmark index gained 1.74%.