Ranbaxy Hit Hard By Regulatory Issues

While the US issues have just got resolved, the company is facing another audit. The Indian drug regulator has now ordered an audit of 2 of its manufacturing facilities (Dewas in Madhya Pradesh and Paonta Sahib in Haryana) starting from Monday, June 10, 2013. The markets have been reacting to various developments with the company as the stock has shown a correction of 22% in the period of less than a month.

The India Drug regulator, Drug Controller General of India (DCGI) is also scrutinising the drugs manufactured by Ranbaxy and by a few other companies. No company so far is found guilty of selling sub-standard drugs. The DCGI's study, however, has been keenly watched by chemists and hospitals.

Earlier, the well-known Apollo Pharmacy stopped selling Ranbaxy drugs despite the company assuring the quality of its drugs. Apollo Pharmacy has a countrywide presence which means the domestic sales of Ranbaxy will take a hit during the June 2013 quarter. The cascading effect has also lead to the some other pharmacies stopping the sale of Ranbaxy drugs.

A few days ago, Jaslok Hospital, a marquee name in the healthcare business, asked its doctors not to recommend Ranbaxy drugs. The hospital has recently re-started writing Ranbaxy drugs. A host of hospitals across the country are watching the DCGI's directive after the scrutiny.

Japan-based Daiichi Sankyo, current promoters of Ranbaxy, may have some introspection to do after they receive this huge setback. As per reports, Daiichi Sankyo may also consider wiping out Ranbaxy due to the falling value of this brand.

However, analysts seem to be optimistic on the stock. The top analysts have a 'buy' recommendation on the stock while a few others have recommended a 'hold'. It is only after the DCGI’s report that retail investors should take a call on Ranbaxy.