The Hindu Business Line : FIIs up stake in Ranbaxy

FOREIGN Institutional Investors (FIIs) have increased their equity stake in Ranbaxy Laboratories in the first quarter (January-March) of 2003 to 22.61 per cent from 20.07 per cent in end-December 2002.

Simultaneously, the company's share price firmed up by 12 per cent since January in the backdrop of a decline in the market index, Nifty, by about 14 per cent during the same period.

Traders and other equity market participants attribute the firm price trend in the stock and the increasing institutional interest to upbeat expectations about Ranbaxy's growth.

Even though a pharmaceutical company such as Ranbaxy is loosely classified as a "defensive" stock that gains currency at times of economic uncertainty, the current trend "has more to do with its growth prospects" said a fund manager.

Ranbaxy's financial performance has registered a significant rise over last year on the heels of a growing presence in the US market for generic medicines. For instance, in the financial year 2002, the company's profit after tax increased by 139 per cent over the previous fiscal to record Rs 605 crore. The proportion of sales originating in the US in fiscal 2002 was 39 per cent as against 18 per cent in the preceding year.

Another development that has helped Ranbaxy is the disturbance in the pharmaceutical distribution chain in the run-up to introduction of the value-added tax (VAT).

According to Ms Kavita Thomas, Analyst, SMIFS Securities, stock replenishment in the distribution chain slowed down in March in the wake of uncertainty about the implications of VAT to the trade. The slowdown in replenishment is expected to have an adverse impact on pharmaceutical companies that rely largely on the domestic pharmaceutical market.

In that backdrop, market participants suggested that the current trend in the share price of Ranbaxy is indicative of the upbeat expectations about the company's performance in the overseas market. The same is expected to more than offset any difficulty experienced in the domestic market.

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