Ranbaxy Laboratories Ltd’s June quarter earnings do not come as a surprise, except for the foreign exchange-related charges, which fluctuate every quarter. Sales rose 54.6% year-on-year (y-o-y), but it incurred a massive loss of Rs.580 crore, which was perhaps why its share declined 2.6% on Thursday. But the main reason for the loss is forex-related charges. While its operating performance deserves more importance, that, too, saw a decline on a sequential basis.
The June quarter was the last one in which Ranbaxy earned revenue from selling generic Lipitor, in a six-month exclusivity window, in the US market. With just two competitors, it earned a windfall, part of which it had to share with Teva Pharmaceutical Industries Ltd. The exclusivity period started in end-November and ended in end-May. That’s why Ranbaxy’s sales declined 14.1% over the March quarter, as a number of firms have jumped in after the exclusivity period ended.
Ranbaxy’s North American market sales rose 140% y-o-y to $272 million; but in dollar terms, it declined from the $416 million figure seen in the March quarter. In India, it maintained growth at 13% y-o-y, matching the March quarter’s growth, which may come as a disappointment. Other companies have posted higher growth, and its slower growth seems to be a function of the categories it is present in, as Ranbaxy said it grew faster than category growth. In Europe, sales rose 19% on constant currency basis, but were flat sequentially as sales in Romania were affected during the period.
The foreign exchange impact was a dampener in the quarter as the company’s operating profit rose 142% y-o-y (but declined 49% sequentially). On account of foreign exchange, it incurred a charge of Rs.250 crore taken as an expense, a Rs.600 crore mark-to-market loss on derivatives, and a Rs.116.5 crore loss added to interest costs. That’s a combined hit of Rs.966.5 crore.
The September quarter results are expected to see US sales return to more normal levels as the exclusivity period for generic Lipitor has ended. Margins, too, are likely to fall further, and even if it gets a few good product launches, it may not be enough to fill the void created by the end of the exclusivity period for generic Lipitor.
Next quarter onwards, investors will get a better idea of the shape the company’s base business in the US is in.
The key issue to watch out for would be if it announces progress in completing the requirements put forth in the consent decree, to which the approval of some first-to-file drugs are linked. Ranbaxy completed a key milestone by launching generic Lipitor; now it has to show investors it has more tricks up its sleeve, to deliver earnings triggers that investors covet so much.