Stock Review: RANBAXY

Ranbaxy's consolidated first quarter results, though negative on the surface, have a bit of a positive streak. The 14% drop in net sales and a 68% decline in net profit were lower than what analysts expected.

The proportion of income earned from first to-file opportunities in the first quarter of 2010 was not similar to the March quarter this year leading to a high base effect. Excluding the effect of FTFs, the company's base business has registered double-digit growth. During the quarter, the company managed to redeem its foreign currency convertible bonds amounting to $560 million (. 2,464 crore). The company's net debt now stands at $270 million (. 1,188 crore).

There was no significant foreign exchange gain or loss during the quarter impacting the profit. Ranbaxy reported increased synergies between Ranbaxy and Daichii Sankyo. Its US revenues were supported by the exclusivity period sales of Donepezil, a first to file product launched in the December quarter of 2010. In India, the company's planned efforts through project 'Viraat' have borne fruit leading to higher than industry growth for the company. Ranbaxy managed to gain market share through product launches and increased sales to hospitals and semi-urban and rural areas.

The most critical factor for the company still remains its unresolved is-sues with US FDA's ban on company's two manufacturing facilities since 2008. The company has provided limited information on the current stage of negotiations with the US authorities. If that happens, Ranbaxy's investors may see a significant depreciation in the value of their investments.

The company's stock is already down by 25% since the beginning of 2011. Thus, investors have little to cheer about until the US FDA issues are resolved.