Home >Companies >News >Sun Pharma warns on revenue, profit over Ranbaxy takeover

Mumbai: Sun Pharmaceutical Industries Ltd warned that its revenue and profit for the current financial year are likely to be “adversely impacted" because of costs and charges related to integrating Ranbaxy Laboratories Ltd and resolving manufacturing issues at the acquired company’s plants.

The country’s largest drug maker by sales expects consolidated revenue to either remain flat or show a decline from a year earlier. Profit can also be hurt because of costs related to the corrective steps to be taken to make Ranbaxy’s India plants compliant with US drug manufacturing standards, Sun Pharma said on Monday.

Billionaire Dilip Shanghvi-controlled Sun Pharma, which bought Ranbaxy for $3.2 billion from Japan’s Daiichi Sankyo Co., needs to urgently fix manufacturing issues at Ranbaxy’s India plants to get the ban on export of medicines to the US, the world’s largest drug market, lifted. Sales outside India accounted for 77% of Ranbaxy’s revenue as on 31 December 2014, the last quarter for which Ranbaxy’s earnings are available.

Sun Pharma will face supply constraints in certain products because of “remedial actions" taken at Ranbaxy’s India plants in the near term, the company said without giving details.

The US Food and Drug Administration has banned products manufactured at Ranbaxy’s Indian plants from entering the US after inspection of a company plant showed that it has violated good manufacturing practices.

The supply constraints will continue till Ranbaxy’s multi-products Halol plant is compliant with US production standards, Shanghvi, managing director, Sun Pharmaceuticals, said in a conference call late on Monday.

Shanghvi said remedial actions at plants in Mohali, Dewas, Paonta Sahib and Toansa are on track. “We are working towards the fulfilment of the requirements of the US consent decree and will try to expedite the resolution for at least one of these facilities," Sun said in the statement.

Analysts said a clear guidance from the company is a positive step.

“The guidance given for FY16 and FY17 is a good move as it shows the company has evaluated the related cost towards integration and Ranbaxy’s expected revenues," said Sarabjit Kaur Nangra, an analyst with Angel Broking Ltd.

Sun Pharma said it expects to revert to a more sustainable growth trajectory post-FY16. The company reported a revenue of 27,286.5 crore and a profit of 4,540.6 crore in the year ended 31 March.

The company said CGMP (current good manufacturing practice) compliance is a key priority and it is trying to correct the deviations from it at the Halol facility.

The CGMP regulations contain requirements for methods, facilities and controls used in manufacturing, processing and packing of a drug. The regulations make sure that a product is safe for use, and that it has the ingredients and strength it claims to have.

Sun Pharma said it now expects synergy benefits from the Ranbaxy acquisition to increase by 15-20%, compared with its previous target of $250 million by FY18.

The company also said it might decide to discontinue certain non-strategic businesses as part of the integration process. “These are low-margin businesses with no long-term strategic value. We have identified two to three businesses and are evaluating internally," Shanghvi said.

According to him, Sun will strengthen its consumer products business as it is a high-margin, high-growth sector. Sun will expand Ranbaxy’s over-the-counter or OTC brands to more countries.

The company plans to increase research and development investments on products, including MK-3222, the experimental psoriasis drug which the company bought the worldwide rights to from Merck and Co. last year. The drug is in late-stage clinical trials.

Sun Pharma’s shares rose 0.05% to 946.80 on BSE, while the exchange’s benchmark Sensex fell 0.15% to 28,420.12 points. The profit warning came after end of trading on Monday.

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