Ranbaxy cuts expenses to improve margins
Ranbaxy cuts expenses to improve margins
Ranbaxy Laboratories Ltd’s results disappointed the Street, as its shares fell 4.3% after the company reported a massive ₹ 457 crore loss in the September quarter.
The real surprise was an improvement in margins. Consolidated revenue, including other operating income, rose 8.7% year-on-year (y-o-y) to ₹ 2,096 crore. The main drivers were Europe, Africa and the Commonwealth of Independent States, with sales rising in the 21-24% range.
In India, sales growth was muted at 6%, as a slowdown in the anti-infective segment affected all firms. The over-the-counter division did well, with sequential sales growth of 15%.
In the US market, sales growth was down 3%, mainly due to a high base effect. Latin America and Asia-Pacific disappointed, however. Product supply problems in Latin America affected its performance in that continent.
Operating profit margins improved by a respectable 113 basis points, solely due to the cutback in other operating expenses. One basis point is 0.01 of a percentage point.
The hike in operating profit margins on Ranbaxy’s sizeable revenue base translated into a 49% growth in profit before tax and exceptional items to ₹ 182 crore. What followed were losses on account of forex fluctuation’s impact on loans and derivatives of ₹ 651 crore, against gains of ₹ 260 crore in the year-ago period.
Ranbaxy reported a loss of ₹ 457 crore against a profit of ₹ 373 crore a year ago. But its profit excluding forex-related figures give a more accurate and reassuring picture.
If the Indian market continues to underperform, it will be a disappointment. The company’s ability to launch a generic version of cholesterol-reducing drug Lipitor is a key factor. The expectation is that it will settle its pending disputes with US regulatory authorities, after which it can launch generic Lipitor and other key products.
The key question: is a settlement on and what is the monetary component? A slap on the wrist will enhance profit from selling generic Lipitor, with a six-month exclusivity period, but a sizeable penalty will reduce its gains. This issue will influence valuations in the near to medium term.
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