Ranbaxy's margins up on cost control and forex gains

Firm beats expectations in Sept, but analysts eye news on Diovan exclusivity

Ranbaxy has beaten the Street’s expectations with its September quarter (Q3CY12) numbers, despite the end of the exclusivity window for atorvastatin (Pfizer’s Lipitor). The company has improved profitability on cost efficiencies and favourable currency movements. The quarter saw currency gains of Rs 460 crore, which helped shore up margins and net profit. The launch of the generic version of diabetes drug Actos, under the exclusivity period, also helped the company’s sales growth.

The company has managed to grow sales and improve profitability in the third quarter of CY2012. While consolidated sales were up 31 per cent to Rs 2,651 crore, the company’s base business revenues (excluding products under exclusivity period) also grew 25 per cent to Rs 2,500 crore. Given that the one-time gains accrued to the company were to end, analysts were expecting sales growth to moderate. However, this did not happen and the company has beaten the Street expectations with a 31 per cent growth in sales (rupee terms) and an operating margin of 16 per cent. However, if one excludes the benefit of rupee depreciation, the margin would stand at 13 per cent, which analysts say is lower than peers. The management has conveyed in a conference call with analysts that the company will continue to expand margins in the coming quarters.

Analysts say the US base business grew by 25 per cent to $105 million year-on-year, while overall US sales stood at $152 million in constant currency. Emkay Global says the growth in the US business was driven by sales of Lipitor generic (estimated to have contributed $15 million) and the launch of first to file (FTF) Actos generic pioglitazone. The launch of pioglitazone is estimated to have contributed $47 million last quarter (launched under exclusivity on August 17, 2012). Ranbaxy’s sales are almost equally derived from both emerging and developed markets.

The management claims that the quarter has also seen 14 regulatory agencies from the US, European Union and Africa visiting its facilities across the globe. Though the implementation of the consent decree from USFDA (to restart production at two of its facilities) is on track, some clarity is expected by the end of the year. Besides, the company is also confident that it will get the exclusivity permission for cardiovascular drug Diovan, which is a $1-billion product. The permission was expected in September but got delayed. This would be the next trigger for the company, believe analysts.