Stock Review: RANBAXY

Ranbaxy Labs, the country's largest pharma company, posted a dismal performance in its fourth quarter. The poor show overshadowed the good performance reported by the company for the full year 2010.

Ranbaxy posted a loss of . 97.5 crore for the quarter against the year-ago profit of . 255.6 crore. Net sales dropped by 9% to . 2,066 crore, mainly due to poor performance in the developed markets. The performance was below market expectations; the stock price has dropped by 3%. Three-fourth of Ranbaxy's revenues come from business outside India. Sales from this segment dropped 17% YoY. The company was expecting good revenues from the launch of the generic of Aricept in the US on account of its first-to-file opportunity. But, even though it captured a market share of 30%, the price of the generic depreciated by over 70%, leading to lesser realisations. Its business from India, contributing over 25% to total revenues, rose 28.5%, helped by the good performance of its over-the-counter consumer healthcare products such as Revital and Volini. The drop in revenues impacted the operating profit, which declined 36%. Operating profit margin has dropped by 475 bps to 1%. During the December quarter, the company also made a provision for impairment in goodwill of its subsidiaries to the tune of . 181.5 crore, which wiped out its profits for the quarter. While rupee appreciation did mar export realisations, it also enabled the company report a forex gain on loans and currency derivatives. But, the forex gain of . 150 crore for the quarter was much lower than . 475 crore in the same quarter last year.

Ranbaxy reported double-digit growth in USA, India, CIS, African and Latin American regions during the year 2010. It has achieved a growth of 16% in revenues and a five-fold increase in profit for the year. Despite this, the company has provided a flat growth guidance of . 8,400 crore for the base business for CY11, hinting at a nonetoo-promising scenario for its core business. To achieve growth over the previous year, the company will have to depend more on the riskier avenue of earning revenues through first-to-file opportunities.