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Ranbaxy’s sales healthy, profitability could be better

Ranbaxy’s sales healthy, profitability could be better
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First Published: Sun, Aug 07 2011. 10 13 PM IST
Updated: Sun, Aug 07 2011. 10 13 PM IST
Ranbaxy Laboratories Ltd’s June quarter profits bettered analysts’ estimates, just as it did in the previous quarter. For generics companies such as Ranbaxy, estimates are made difficult by the fluctuations in the sale of drugs having 180-day exclusivity in the US market (known as first to file, or FTF).
In the current quarter, FTF sales of Donepezil—Ranbaxy’s generic version of Aricept—ended in the US. FTF product sales in the year-ago period caused a high base effect, too. Also, Ranbaxy’s profit estimates are made more difficult by the presence of foreign exchange-related gains and losses, which are significant and variable.
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Ranbaxy’s consolidated sales within India in the June quarter rose 16.6% year-on-year (y-o-y) while those outside fell around 6.4%. Overall revenue declined around 1.7%, since overseas revenue contributes to about four-fifths of the total.
But operating profit fell by a much higher margin—around 56%—partly due to the loss of FTF-product revenue.
Costs have been rising significantly, even excluding material costs. In a post-results conference call, the management said that selling and general administration costs have increased, as it attempts to ramp up sales growth in its key regions. Employee costs are rising due to salary hikes and hiring. In its base business, excluding products with exclusivity, sales growth was 18% during the quarter, which is good.
A key feature during the quarter was the good growth in India, finally showing that its restructuring programme has begun to show results. The firm expects this to continue.
Growth in key regions was good, except in CIS (Commonwealth of Independent States), where Ukraine was an under performer, and Latin America, where the firm changed its product mix to focus on more profitable product lines.
Net profit for the quarter fell around 25% y-o-y, chiefly because of exceptional income related to foreign exchange rate fluctuations. The company’s financials show a significant inventory build-up, indicative of key launches in the September quarter. For Ranbaxy, there are two main triggers to look out for. One is the expected launch of the generic version of blockbuster drug Lipitor in November, with a 180-day exclusivity window. Another is its pending settlement with the US Food and Drug Administration and the department of justice. It would be neat if the two happen together as the blow suffered because of a cash outflow from a deal will be blunted by the windfall from generic Lipitor.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Sun, Aug 07 2011. 10 13 PM IST