Ranbaxy Reports Rs 492 Crore Loss

India's top drug maker Ranbaxy Laboratories has surprised the street by reporting a loss of Rs 492 crore for the fourth quarter of the calendar year 2012. While the market was expecting some dip in its profits, the Q4 loss has taken the markets by surprise. The shares of Ranbaxy also tanked by 4% on the bourses after the results were announced.

Its consolidated topline declined by 29% on a YoY basis to Rs 2670 crore. Domestic revenues at Rs 547 crore were up by just 8.7%, while that in the international market were at Rs 2123 crore, down by 34.6%. The other operating income also declined by 45.5% to Rs 40 crore. 

The decline in the topline was mainly on account of the two reasons. In the December 2011 quarter, the company had a high base, thanks to the launch of a clone of Lipitor with 180-day exclusivity which had swollen its base. Secondly, in November 2012, due to detection of the glass particles, it had recalled the product which declined the sales for a better part of the quarter. Effectively, the Lipitor clone sale was carried on for a period of 8 weeks. The high base impact however is a more relevant reason for the decline in the company’s sales.

During the quarter, the company has reported a decline in the cost of materials by 4.09%. Employee cost has increased by 24.5% while other expenses have risen by 17%. Other costs however have shown a decline but the decline in sales is so sharp in the quarter that the company has reported loss from the normal operations.

Its EBITDA margins have also fallen sharply on a YoY and sequential basis due to the decline in the sales as well as an increase in the claims and contractual expenses. 

The company during the quarter has also reported product recall expenses of Rs 186 crore on account of the recall of a generic of Lipitor. It has also incurred a forex loss of Rs 180 crore. In the December 2011 quarter, its forex loss stood at Rs 840 crore while in the September 2012 quarter it had reported forex gains of Rs 393 crore. During the quarter, the company has also seen its interest cost rising by 49% to Rs 135.6 crore.

In December, the company had reported profit at EBITDA level but had reported a net loss of Rs 2978 crore due to the settlement provision of Rs 2648 crore with the US Department of Justice to remove the US FDA ban on its two facilities. That was a one-time provision and hence the same is not done in this quarter.

The company holds January to December as its fiscal year and hence also has announced its annual balance sheet with the fourth quarter results. Its net worth on a YoY basis has increased by 42%, mainly on account of a jump of 45.6% in its reserves to Rs 3871 crore. This may look surprising but the company has made good profits in the first three quarters of the current fiscal. 

Its long term liabilities on the other hand have more than doubled from Rs 974 crore to Rs 1971 crore which is why its interest cost has jumped in the quarter. Due to the rise in the liability, the debt to equity ratio has also jumped from 0.34x a year before to 0.48x in the quarter under review. The company also has a strong cash position at Rs 4600 crore against Rs 3063 a year before.

Overall, the decline in sales is mostly in line with our expectations but the fall in the net profit is very surprising. The company has re-launched the generic of Lipitor in the US markets, but we don’t see a major revenue upside for the next two quarters as the business in March 2012 and June 2012 was very strong and hence the base impact would again be seen in the next two quarters. 

We believe that there is still a downside risk in the stock and hence maintain our call to avoid Ranbaxy.