In 2010, Ranbaxy Laboratories Ltd’s financial health improved not only because of higher growth in revenue, aided by some key product launches in the US market, but also because of better working capital management.
The company’s operating profit before working capital changes rose to Rs1,859 crore, from Rs53 crore in the previous year.
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In 2009, its performance got affected by regulatory issues in the US market, but it recovered in 2010. The higher level of revenue did see its inventories rise by Rs381 crore, which could have affected its cash flow, but Ranbaxy controlled its debtors and lengthened its payables. That led to cash flow from operations rising to Rs2,157 crore, compared with just Rs80 crore in the previous year. As a result, its cash and bank balance rose by over 2.5 times to Rs3,264 crore during the year.
The jump in cash was timely, as it had bond redemptions due in 2011. The company redeemed foreign currency convertible bonds in March, with a face value of $440 million (around Rs1,950 crore today) and redemption value of about $560 million. Though it had enough cash to repay these bonds, it may have chosen to refinance part of its obligation to retain adequate cash for business needs.
The annual report mentions that 2011 will see more initiatives to secure growth, and put behind challenges. One big challenge, of course, is its attempt to resolve compliance-related issues with the US Food and Drug Administration and the department of justice. Shareholders will hope for a quick settlement in 2011, and one that does no serious damage to its finances.
Ranbaxy appears to be comfortable on the capacity front and has only about Rs380 crore in capital work in progress, against Rs620 crore in the previous year. Rising revenue, a healthier balance sheet and lower capital expenditure requirements give it the leeway to invest more in growing its business.
Factors that investors will be watching out for are: resolution of its regulatory issues with US agencies, successful launches of products with first-to-file opportunities, especially of generic Lipitor, and faster growth in the Indian market after a revamp of its domestic operations.