Ranbaxy: Forex booster

Resolution of issues with the US Food and Drug Administration remains the single most important trigger for the stock.

Ranbaxy’s sales in the September quarter were largely driven by robust domestic growth and US revenues. Although the US business did not enjoy any ‘exclusivity’ opportunities (unlike the June quarter), Valacyclovir, after exclusivity, managed a market share of 33-35 per cent in the US. This helped push US revenues to $86 million (around Rs 394 crore), boosting overall net sales 9.8 per cent year-on-year to Rs 1,883.7 crore (down 10 per cent sequentially).

With Ranbaxy’s Project Viraat (a plan to push India business) gaining traction, domestic sales grew 18 per cent year-on-year to Rs 430.3 crore. Ranbaxy expects the 15-20 per cent growth rate to continue in the domestic segment.

Inventory provisioning of Rs 50 crore and a 19.7 per cent rise in staff costs at Rs 366 crore hit earnings before interest, tax, depreciation and amortisation, which came in at 9.9 per cent, compared to 11.3 per cent a year ago. However, forex gains of Rs 260 crore boosted net profit by 168 per cent year-on-year to Rs 312.8 crore.

The resumption of Nexium API (active pharmaceutical ingredients) supplies to AstraZeneca in November, after remaining deferred since May 2009 due to the US Food and Drug Administration (FDA) issues, will be a shot in the arm for Ranbaxy’s API segment.

Since the issues with FDA have still not been resolved for Paonta Sahib and Dewas plants (for launch of Lipitor and Aricept generics), manufacturing has been shifted to the New Jersey plant. However, uncertainties persist over other Para IV filings from the Dewas plant.

The management has not given any timeline yet for resolving the FDA issues, which is the single-most important trigger for the stock now. The scrip, priced at Rs 564.7, trades at 18.2xCY10 estimated earnings.