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Recovering from forex losses
September, 14th 2009

THE worst seems to be over for Ranbaxy Laboratories. A slew of positive news & product launches and change in management has helped its shares rally impressively over the last several weeks. The stock is up 143% from its low of Rs 133 in March 2009, outperforming the Sensex, which rose 102% during the same period.


Ranbaxy earns 80% of its revenues from overseas. Japanese pharma major Daiichi Sankyo acuired it in June 2008.

Soon after the acquisition, the company faced tough time with the US Food and Drug Administration (FDA) imposing regulatory clamps on manufacture of certain drugs at its two sites in India.

It also suffered huge forex losses due to rupee depreciation. These setbacks led to a 70% fall in Ranbaxys stock from September last year to March this year.


For now, early resolution of issues with US FDA is the priority for Ranbaxy. The Dewas facility is expected to receive FDA clearance in next 4-6 months. In the June quarter, its sales in Europe (except Romania), while still being lower than the year-ago levels, were more than the March quarter.

The company has changed its strategy from being a volume-based player to one protecting its bottom line in Europe. Ranbaxy has now turned its attention to emerging markets which contribute around 57% of the companys consolidated sales.

In India, it has retained its second rank in the domestic formulations market. Ranbaxy is also growing in consumer healthcare space with products in nutrition and pain relieving segments. It has also commenced Phase-III clinical trials for its anti-malaria combination drug.


The FDA action hit the company adversely in the US, its largest market, over the last four quarters. Consistent rupee depreciation in 2008 and large exposure to international markets resulted in forex losses of Rs 1,086 crore on foreign currency derivatives and loans. After suffering operational losses for two consecutive quarters, the company has managed to report operating profit for the latest quarter ended June 2009.

While it is largely due to the forex gains arising on account of rupee appreciation, there are also signs of recovery in the companys business. The company has received product approvals in Canada and US. It has also acquired brands in dermatology and pain management segment in India.


Pending the resolution of issues with the FDA, Ranbaxy could continue to face delays for new product approvals and sales of existing products to the US. Its first to file opportunities may also come under risk as other generic companies would try to trigger the 180-day exclusivity opportunity.


The company has given its guidance of a net loss of about Rs 800 crore on sales of Rs 7,000 crore for year ending December 2009. At the current state of recovery, long-term investors are recommended to accumulate the companys stock at the current lower levels rather than later when the recovery is complete.

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