Ranbaxy: Hold/Avoid fresh exposures

Recommendation: Hold/Avoid fresh exposures

Sanjiv Shankaran

A surge in domestic sales, coupled with a sharp increase in the sale of formulations (drugs in a ready-to-consume form) to the US, helped Ranbaxy increase its operating profit margin in 2000.

In the second half of 2000, an increase in the growth of domestic formulation sales resulted in Ranbaxy recording a domestic turnover of Rs 928 crore in 2000, up by 12.22 per cent. The aggregate export turnover rose 10 per cent to record Rs 814 crore. Ranbaxy's export of formulations recorded a significant growth, especially the formulations bound for the US market.

The aggregate turnover was Rs 1,869 crore, up by Rs 152 crore (8.85 per cent). The company's operating expense was Rs 1,545 crore, an increase of Rs 122 crore (8.57 per cent). Ranbaxy's operating profit for 2000 was Rs 384 crore, an increase of 12.28 per cent over the previous year. Of greater significance, perhaps, is that Ranbaxy's operating profit margin was 20.54 per cent, an increase over the previous year's margin of 19.91 per cent.

The company's profit before taxes and extraordinary items was Rs 196 crore, up by Rs 29 crore (17.2 per cent). In 1999, Ranbaxy received technology licensing fees from Bayer AG. In the absence of something similar, Ranbaxy's net profit dropped to Rs 181 crore in 2000, down by Rs 16.

Ranbaxy's share price is likely to be driven by a combination of developments in the US generic market, inflow of technology-related fees and a continued growth in the domestic market.

As of now, the company is short of positive news. Ranbaxy's business model envisages a powerhouse in the global generic market. The company is gradually progressing towards that goal, a factor that makes it a good long-term proposition. But for now, at the current price of about Rs 630, investors may consider waiting for developments before contemplating fresh exposures.