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Excluding the effect of forex-related movements, Ranbaxy’s operating profit margin was 38% compared with 0.1% in the year-ago period. Some of this is attributable to its restructuring efforts, but a lot to the effect of US sales and settlement income. Maintaining this margin will be difficult during the rest of the year. Forex-related gains during the March quarter amounted to Rs449 crore compared with a loss of Rs1,130 crore in the year-ago period. Thus, forex gains contributed to nearly one-third of pre-tax profits. Still, with a net profit of Rs961 crore, Ranbaxy has crossed its annual guidance in the first quarter, even after excluding forex gains. Any major volatility in forex rates could impact its results in the rest of the year.

It has entered into a settlement with Takeda Pharmaceutical Co. Ltd for launching generic Actos in the current quarter. The company is also expecting its base business to maintain growth during 2010. It is investing heavily in its Indian operations. But India’s sales growth at 15% underperformed the market. In 2010, investor focus will centre on its ability to resolve its pending plant compliance issues with the US Food and Drug Administration (FDA), at least for its Dewas plant. To its credit, Ranbaxy’s US operations are in a much better shape despite its regulatory issues. A patch-up with the FDA, however, will see its US business achieve its full potential.

The share rose 3.5% before ending the day up by only 0.9%, probably due to the role of forex gains in profit growth. Apart from the FDA issue, any further settlements with innovator firms or first-to-file opportunities, better performance from its Indian business and visible benefits from its association with Daiichi-Sankyo will be some growth triggers to watch out for.

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