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Ranbaxy: Key markets of US, Europe not so promising

27 Oct 09 11:44 AM
While the Street expected Ranbaxy to register a profit in the September quarter, the actual numbers — on a consolidated basis — exceeded expectations. The drug maker delivered on this count despite a 9% dip in its consolidated net sales — in rupee terms — a drop that again was more than expectations.

With operating profit margin at 13%, the company has registered a double-digit margin for the first time in the past four quarters. While it is evident that profit growth has not been on the back of higher revenues, the company’s belt-tightening measures such as cost containment in the form of reduced selling, general & administrative (SGA) expenses helped boost its operating margin.

A poor performance in the US market followed by the European markets continued to be a sore point. Ranbaxy is still to get respite from the ongoing issues with the US FDA — which has been hurting its performance since the September 2008 quarter. This is most visible in its performance in the US market where its sales fell 53% y-o-y.

The company continues to struggle in the key European markets as its revenue from the continent dropped 10% y-o-y. Within Europe, Romania continues to be the worst performing market for Ranbaxy due to new pricing rules for generic players and liquidity crunch in trade channels.

As a result, the contribution of emerging markets to the company’s revenues increased to 62% of Ranbaxy’s total consolidated revenues. Canada, South Africa and Mexico registered strong double-digit y-o-y growth. However, total sales in Asia, the Middle-East and CIS regions have remained flat when compared to the same period last year. The company’s performance in the domestic market, where it is among the top three companies by sales, has proved to be a disappointment.

The consumer healthcare business was the growth driver for the company’s performance in the domestic market. Excluding that business, sales in India grew by a mere 2%. Company’s consumer healthcare brands such as Revital and Volini have been major growth drivers in the local markets.

While Ranbaxy may have pleased the Street with good earning numbers, the company has to deliver a sustainable and profitable performance going forward which, in turn, hinges on the company’s business growth in its key markets. For now, much depends on how early the company can manage to settle its issues with the US FDA.