PROJECT REPORT ON

Ranbaxy Laboratories Ltd

Submitted By: Ritika Parmar Sachin Katiyar (PGDM125) (PGDM130)

Sachin Kushwaha(PGDM131)

Analysis of Ranbaxy
(MOS)Margin of Safety:The margin of safety is a tool to help management understand how far sales could change before the company would have a net loss. . It is computed by subtracting break-even sales from budgeted or forecasted sales. MOS = (sale BES) Margin of safety of Ranbaxy fluctuates from time to time.In March 2005 it is more than 2006 and 2007.In 2008 it suddenly declines to its minimal point to Rs.961(approx.).And in 2009 it suddenly increases to its maximum limit to Rs.24747(approx.).In the years 2005,2006,2007 and 2008 it was below average.And in the year 2009 MoS is very much higher than average. On the other hand the margin of safety of industry increase continuously.It becomes double almost every year.In 2005 it was at its minimum point of Rs.41372(approx.) and in 2009 it reaches to its maximum point of Rs.660536(approx.).The value of Margin of Safety is below average in the year 2005,2006 and in 2007.It becomes higher than average value in the years 2008 and in 2009. In Ranbaxy, there was a fluctuation among value of Margin of safety.Where as in industry it is constant.In Ranbaxy its value

decreases after 2005 till 2008.And in 2009 it again increases.Decrease in the value of margin of safety indicates that company had to incurred loss during the time period of 2005 to 2008.In 2009 it again increases, which shows that company is in profitable condition.

BEP Analysis:
The break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return. Break even point (for sales) = Fixed cost / Contribution

Break even point of Ranbaxy increase continuously from the time period of March 2005 to March 2009.In the year 2006 and 2007 it was almost same.Average BEP of Ranbaxy from 2005 to 2008 was 1600(approx.).From the year 2005 to 2007 the BEP of company is below the average value.But in the year 2008 it becomes more than average. BEP of industry increase at the rate of almost double from the year 2005 to 2009.The average value of average of BEP is Rs.248731(approx.).Like Ranbaxy in the year 2005,2006 and 2007 the value of BEP of industry remains lower than average value.In the year 2008 and 2009 it becomes higher than average value.

Operating Leverage (OL)

It shows the risk taken by the company and how much a company invests in its fixed cost. Investing more in fixed cost means more risk. Operating leverage = contribution/EBIT Operating leverage of Ranbaxy fluctuates from 2005 to 2009.It becomes very close in the year 2005 and 2007.It is more than double in 2006 where as it is very less in the year 2008 and 2009. Where as value of operating leverage of industry doesnt show fluctuations.It is remains almost constant within five year period.

Decline in 2009:In case of BEPThere is a loss in the year 2009.Due to more expense in variable cost, sales revenue becomes less than variable cost.Due to which company has to incur loss. In case of MOSFrom 2005 to 2008 MOS increases continuously.In the year 2009 it increases gradually and cover the average MOS.In 2009 it is 24747(approx.).It reflect positive sign for the company. In case of operating leverageFrom the year 2005 to 2007 the operating leverage of the company is higher and it is close to average.After 2007 operating leverage declines.It shows that in the year 2005,2006 and 2007 company has aggressive approach.Where as in 2008 and 2009 company has more conservative approach.

Reasons for Upgrade

The worst seems to have passed for Ranbaxy and it is now all set to witness better times ahead, as the company appears to be on track to soon resolve most of the concerns, such as the US FDA issues, slowdown in its European operations and forex losses

 Since January 2009, the company has already carried out three meetings with the USFDA and it will submit a corrective action plan to the USFDA by mid June 2009. This will be followed by a validity assessment on a product-toproduct basis, for which a third party has been appointed. Thus, the companys USFDA issues could be resolved by the end of CY09 In CY10, we expect Ranbaxy to commence supplies of API, as well as formulations of Nexium to Astra Zeneca. We also expect sales from Valtrex (the companys FTF application on Valacyclovir) to begin in CY10. Plus, the companys European operations appear to have normalized With the Rupee strengthening, Ranbaxy is hopeful of reversing its MTM losses of Rs.9.2 bn incurred in Q1 CY09 in Q2 CY09 itself and if the Rupee continues to remain at these levels, then the company will be able to reverse its MTM losses incurred in CY08 as well From Q2 CY09 onwards, we expect a continuous improvement in Ranbaxys numbers with each passing quarter. The resolution of the companys USFDA issues and the lifting of ban on its products will act as a key upside trigger for the stock Hence, though the CY09 performance of Ranbaxy would be subdued, we expect a bounce back in CY10 and expect a bottom line growth of 124% in CY10. The EBIDTA margin, RoE and RoCE are seen expanding and reaching the historical levels in CY10

The Story (Supposed reason)

Given the new investing paradigm, that has been the rage since March 9, 2009, Ranbaxy fits very nicely into that: plenty of problems, iffytrack-record, and a relatively beaten down stock price (one cant say anything about the old management, because they are gone). Given the spate of bad news, it kind of leads us to believe that bad things have reached a crescendo for Ranbaxy, and the intensity will lessen hereafter (I mean, the US-FDA must have some other companies to muck around with). And remember, again in the new investing paradigm, that lessening of bad news is good news. By this count as well, we think Ranbaxy is a sure-shot winner. But, more fundamentally, we do see things beginning to become better for Ranbaxy.Read on In view of its ongoing USFDA issues and uncertainties surrounding Ranbaxy Laboratories Ltd. (RANB.BO/RBXY.IN), we had last put a ST Hold recommendation on the stock in late December 2008. Since then, the stock has been under severe pressure and was down 39%. However, we had always liked Ranbaxy from the long-term perspective, in view of the companys strong R&D pipeline.

Unquote by Rnbaxy
(From First Globals Ranbaxy Laboratories Ltd.: Delay in resolving USFDA issues & lifting of ban to adversely impact performance in Q4 FY08; recommend Hold, dated December 23, 2008). A major reshuffling exercise was recently carried out among Ranbaxys top management, following which, the company held a conference call. Post the conference call and after our discussion with management, we have reached the conclusion that the worst seems to have passed for Ranbaxy and the company is now all set to witness better times ahead. Ranabxy appears to be on track to soon resolve most of the concerns surrounding the company, such as the US FDA issues, slowdown in its European operations and forex losses. Since January 2009, the company has already carried out three meetings with the USFDA and it will submit a corrective action plan to the USFDA by mid June 2009. This will be followed by a validity assessment on a product-to-product basis, for which a third party has been appointed. Thus, the companys USFDA issues could be resolved by the end of CY09. In CY10, we expect Ranbaxy to commence supplies of API, as well as formulations of Nexium to Astra Zeneca. We also expect sales from Valtrex (the companys FTF application on Valacyclovir) to begin in CY10. Plus, the companys European operations appear to have normalized.

Future
The overall opportunity in the long term could be to the tune of $100 billion when they start entering developed markets like Europe and the US. He said RLL expects to enter Europe with Zenotech products by late-2010 or early-2011, which will be followed by entry into the US market. Under the transaction, which is expected to be completed this calendar year, Ranbaxy will buy shares from promoters at Rs 160 a piece and through a preferential allotment by Zenotech. Promoters currently hold 57.11 per cent stake. After the open offer, existing promoters will have 25 per cent stake in the expanded equity capital of Zenotech. Jayaram Chigurupati will continue as managing director of the company.