Ranbaxy Records Worst Ever Quarterly Loss On Forex Contracts, FDA Action; Rival Cipla Is Going Strong

MUMBAI - Signs of a deepening financial crisis became visible at India's largest drug maker Ranbaxy as it announced its first quarter results with a worst ever recorded quarterly loss of $153 million (761 crore rupees) on sales of $313 million, which fell 4 percent as compared to the same quarter last year.

Owned up to 64 percent by Japanese drug maker Daiichi Sankyo, Ranbaxy has been showing losses of a similar magnitude in its previous two quarterly earnings.

Commenting on the dismal results, Malvinder Mohan Singh, chairman, Ranbaxy, said, "This quarter has been challenging for the global economy and also the pharmaceutical industry with depreciation in several currencies and a downturn in demand and liquidity affecting performance, across sectors."

Ranbaxy has been severely hit by mounting foreign exchange and derivative trade-based losses as the exchange rate between Indian rupee and other currencies fluctuated steadily leading to a drop in the value of the local currency. Singh expects that the foreign exchange losses will get over by the end of next quarter and has therefore provided a guidance of a further loss of $163 million (800 crore rupees) spread over the rest of the year. This was revealed by Singh over a post-result conference call organized for stock analysts and financial investors

To add to the woes, Ranbaxy's sales in the U.S. plunged 14 percent, mainly due to the on-going import alert and investigations of the U.S. FDA over deviations from good manufacturing practices at one of its Indian manufacturing units (Also see "Ranbaxy In Bear Grip As Sales Slip In U.S. After FDA Restrictions" - Scrip, 5 Mar, 2009.). Ranbaxy attributed the 4 percent fall in global sales to poor monetary conditions, pricing pressures and the devaluation of several currencies in countries where the company has its operations. Analysts in Indian brokerages expressed disappointment and did not rule out a short to medium term downgrade for the stock.

Ranbaxy's growing dependence on emerging market is evidenced as $168 million or 54 percent of its global sales accounted from markets like India, Africa and Russia. Sales from developed markets declined by 6 percent and contributed 39 percent or $122 million to the consolidated top line. Ranbaxy drew comfort from approvals in the U.S. for some key drugs like sumatriptan, quinapril, ramipril and topiramate.

Like in the U.S., Ranbaxy's European sales reflected tough market environment with a ditto 14 percent fall in sales at $57 million. Ranbaxy said, the de-growth was on account of difficult and uncertain conditions prevailing in several European markets and factors such as currency devaluation and channel de-stocking affecting demand. "The positive performance in several countries limited the adverse impact. In certain markets, the product portfolio was rationalized with a focus on profitability, resulting in some loss of sales," a statement from Ranbaxy revealed.

Taking questions from investors, Ranbaxy's Singh said that operations in certain European markets like the United Kingdom, France and Germany are being trimmed and instead of volumes, the company will take a bottom-line approach in these markets from now on.

In tune with the first quarter numbers, Ranbaxy maintained a subdued outlook for 2009. During the year, Ranbaxy expects lower sales of $1.4 billion against $1.5 billion achieved in 2008. Ranbaxy has guided after-tax profit of $150 million for the full year. The end note from the company assumes that the currency exchange rate between dollar and rupee stays at 1:50 and there is no further impact from the U.S. FDA action.

Indian drug maker Cipla turned out much better results than its arch rival Ranbaxy. During the full year, Cipla grew its top line by 23 percent at $1.02 billion and post-tax profit by 23 percent. For the last quarter of Cipla's 2008-09 financial year, domestic market sales grew by 16 percent while exports were up 11 percent.

Contrary to Ranbaxy's financial performance, exchange rate fluctuations favored Cipla as material costs, against percentage of operations, decreased during the quarter. "The impact of the exchange rate is also reflected in increased operating margins, as compared to the previous year, since exports are booked at the prevailing exchange rates," Cipla said in a statement to the Indian stock exchanges.

Asked if the same pace of growth could be expected for the current year, Cipla's joint managing director, Amar Lulla told PharmAsia News, "As the base has grown tremendously, the going will get tougher and so a ten percent top line growth could be a reasonable target."

- Vikas Dandekar ([email protected])