2010 July Ranbaxy | Generic Drug | Leverage (Finance)

ICRA Credit Perspective

Relationship Contact Vivek Mathur vivek@icraindia.com +91-124-4545 310 Analytical Contact Subrata Ray subrata@icraindia.com +91-22-3047 0027 Anupama Arora anupama@icraindia.com +91-124-4545 303 Rating
ICRA has reaffirmed the A1+ (pronounced A one plus) rating to Rs. 600 crore short term working capital facilities of Ranbaxy Laboratories Limited (RLL) . ICRA has also reaffirmed the A1+ rating to Rs. 700 crore short term debt/ commercial paper programme of RLL.

(Refer Annexure for Rating History) Key Financial Indicators
Rs. crore

2007 Net Sales Operating Income OPBDITA Profit after Tax Equity Capital 6,641 6,774 791 774 187

2008 7,223 7,412 655 -951 210

2009 7,327 7,595 812 296 210

Net Worth 2,785 4,278 4,336 OPBDIT/Operating Income (%) 11.7% 8.8% 10.7% PAT/Operating Income (%) 11.6% -12.6% 4.1% PBIT/avg. (Total Debt + Net Worth + DTL – Capital workin progress) (%) 17.5% -14.7% 10.8% OPBDIT/Interest & Finance Charges (Times) 5.6 3.2 11.4 Total Debt/ OPBITDA 5.2 10.7 6.5 Net Debt/ OPBDITA 4.7 7.0 5.0 Total Debt/TNW (Times) 1.5 1.6 1.2 Net Debt/ TNW (Times) 1.3 1.1 0.9 CWIP: Capital Work-in-Progress; DTL: Deferred Tax Liability; OI: Operating Income; OPBDITA: Operating Profit before Depreciation, Interest, Tax and Amortisation; PAT: Profit after Tax; PBIT: Profit before Interest and Tax; NCA: Net Cash Accruals; TNW: Tangible Net Worth

July 2010

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For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications.

ICRA Credit Perspective Ranbaxy Laboratories Limited Credit Strengths       Majority stake (63. in the past RLL had hedged exposures using derivatives which resulted in mark to market (MTM) losses since forex movement was adverse Globally generic pharmaceutical business is characterized by low entry barrier and strong pricing pressure arising from cost based competition Rating Rationale The rating reaffirmation continues to factor in RLL’s strong parentage (63. Ongoing healthcare reforms in US may restrict settlements for generic players and may future growth plans of Indian generic pharmaceutical companies Significant exposure to forex fluctuations with over 75% of revenues from international sales. Japan in June 20081 for Rs. partly on account of this. Ltd (Daiichi Sankyo). RLL is amongst the largest Indian pharmaceutical companies with presence across geographies. ICRA. however. Subsequent to acquisition by Daiichi Sankyo. Ltd. there has been volatility in RLL’s financial performance especially profitability indicators and cash flows since Q3 calendar 2008. RLL’s financial profile. the company’s profitability in the past has been partly dependent on exclusivity products in the US. 1 Announcement was made in June 2008. including product launches after settlement with innovators. the rating factors in company’s ability to increase its presence in high growth emerging markets in the medium to long term. 9. strong R&D capabilities. With revenues of over Rs. RLL is an integrated player with presence across research. would continue to monitor developments relating to the resolution of such regulatory issues. RLL has been successful in monetizing some of its exclusivities in US reflecting the strong execution capabilities of the management. Strong presence in branded generic markets in semiregulated markets including India Vertically integrated operations with large number of product filings across the globe Strong R&D capabilities helped in development of broad based product mix (therapeutic profile) and healthy generic product pipeline in developed markets Credit Concerns      Ban on imports from Poanta Sahib and Dewas facility impact exports to US. cost containment initiatives of management and sale of non core assets. Daiichi Sankyo invested around Rs. . Focus on creating hybrid business model with Daiichi Sankyo focusing on innovator products (largely developed markets) and RLL on generics in both developed as well as emerging markets Diversified geographic presence with ground presence in 46 countries. however. Japan (rated A1/Stable Outlook by Moody’s Investors Services). rated A1/ Stable by Moody’s Investors Services). however. diversified geographic mix. The ongoing healthcare reforms in the US may restrict settlements with innovators in future impacting generic players in the US market. but actual stake transfer took place by November 2008. In the last two years. In the backdrop of RLL’s large dependence on US market.9%) held by Daiichi Sankyo. manufacturing and marketing of active pharmaceutical ingredients (APIs) and formulations. 3.500 crore.576 crore. The rating factors in RLL’s diversified geographic mix with strong presence in select developed markets and emerging markets. continues to be impacted by adverse regulatory actions from the US regulator (USFDA) involving drugs manufactured from three of its US FDA approved facilities. Thus. Additionally. leading to sharp fluctuations. there has been improvement in company’s profitability and cash flows since Q4 2009 with the company benefitting from valacyclovir exclusivity. monetization depends upon ability to successfully undertake site transfers in the backdrop of ongoing regulatory action on Poanta Sahib and Dewas facility Growing share of high growth emerging markets. with strong coverage across therapeutic segments and regular introduction of new products. especially from key regulated markets continues to exhibit high degree of volatility. such regulatory actions subjects company to significant volatility in revenues as well as profits Profitability and cash flows.585 crore through preferential allotment of shares and warrant issue besides an open offer during 2008. The rating also factors in RLL’s healthy capital structure and moderate coverage indicators. well entrenched in generics market of key regulated countries and positioned amongst the top 10 global generic companies Healthy First to File (FTF) pipeline for US.9% held by Daiichi Sankyo Co. vertically integrated operations with large number of product filings across the globe and growing share of high growth emerging markets in company’s geographic revenue mix coupled with healthy pipeline of exclusivity products for US. RLL figures amongst the top three players in India. there have been various synergies identified and the Daiichi Sankyo Group is focusing on creating a hybrid business model to address both innovator products market and generics market globally. Subsequently. Notwithstanding these issues. Despite such regulatory actions. The stake of the original Indian promoters in the company was acquired by Daiichi Sankyo Co. 7.

which included tightening controls at the manufacturing facilities. Additionally. While RLL’s current presence in these markets remain limited. Nevertheless. These factors resulted in sharp decline in exports to US for a few quarters (Q42008 to Q32009). which included India. Vietnam and Japan. Amongst the developed European markets. RLL is pursuing strategies to enhance its presence in emerging markets even as it continues to grow in developed markets. ophthalmology. In line with its generic focus. as a part of this. CIS and Latin America. RLL focused on consolidating its presence in few markets and exited its JVs in certain markets like China. its product mix is skewed towards acute segments. Further in December 2009. the company has switched its focus on European markets from topline growth to bottomline. especially in US. However. In last two years (2008 and 2009) and H1 2010. the company’s ANDA pipeline (12 FTFs as on March 2010) remains healthy and the management is confident of adequate back up plans to capitalise on these opportunities. Mexico). the largest market for the company. RLL witnessed adverse FDA action at its Gloversville (US) facility. Latin America (largely Brazil. Recently. RLL’s quarterly financial performance has displayed significant volatility. there was some recovery in sales in the first two quarters of 2010. Although RLL has presence across therapeutic segments. Post acquisition by Daiichi Sankyo. In the past till 2008. a synergy office was created in India to identify the areas where the two companies would leverage each other’s strengths. Additionally. Notwithstanding these constraints. launch of Valacyclovir by undertaking site transfer to its Ohm Labs facility (in US) resulted in sharp increase in company’s sales in US since Q4 20092 besides strong operating profits. Among the emerging markets. firm timelines of such resolution have not been indicated. RLL was able to capitalise on two of the three FTF opportunities that became due between Sept 2008 and March 2010 through a combination of site transfers and settlements. RLL’s new drug discovery R&D is also being hived off to Daiichi Sankyo. the company took corrective actions to address USFDA issues. RLL has plans to scale up its presence.7%). With the change in management and changing pricing environment.DoJ issues. While the deterioration in sales and operating profits began from Q4 2008 till Q22009 as the company undertook some write offs and witnessed higher S. In line with its strategy to leverage Daiichi Sankyo’ brand equity and marketing and distribution. the other large market for RLL. and six African markets. Daiichi Sankyo identified launch of few of its products through RLL’s marketing and distribution network in select markets. RLL’s subsidiary company— Terapia is the largest company in the generic pharmaceutical and OTC market. however. RLL also benefitted from settlement for launch of Tamsulosin (launched by generic competitor) in Q1 2010. Asia Pacific (key markets being Malaysia). Thus. US$250million in Q12010 and US$ 146 million in Q2 2010 Page 3 ICRA Rating Services . Romania during 2009. US accounts for 22% of the company’s consolidated revenues followed by Europe (12. Asia. However. with RLL retaining the pipeline of research products. however. the company undertook restructuring initiatives to reduce its sales force in UK and Romania besides closing down a manufacturing facility at Bucharest. Nevertheless. RLL has presence in UK and Germany. In Romania. G& A expenses. The other important markets for RLL are Africa. appointment of consultants and working towards a corrective action plan. vaccines. With strong growth expected in emerging markets in the medium term. RLL has strong presence in India (Rs. However. with significant exposure to tender markets. up from 44% in 2005. 1. RLL has embarked on ‘Project Viraat’ to strengthen its leadership position in domestic market. While the company launched Sumatriptan 100 mg in August 2009. in 2008 company faced adverse regulatory action from USFDA that banned imports of 30 molecules from the company’s Poanta Sahib and Dewas facility followed by ‘Application Integrity Policy’ being invoked against Poanta Sahib plant in Feb 2009. the company faced significant pricing pressures on account of changing regulatory environment till 2009.ICRA Credit Perspective Ranbaxy Laboratories Limited RLL’s sales mix can be broadly divided into revenues from Developed Markets and Emerging Markets with Emerging markets accounting for 54% of the company’s revenues in 2009. there was substantial improvement in operating profits from Q3 2009 onwards. and CIS. especially in Q42009 and Q1 2010 largely driven by exclusivity period 2 RLL’s sales in US amounted to US$ 150 million in Q42009. Romania. CNS) in domestic market. The benefits of these initiatives in the form of lower cost base contributed to RLL’s operating performance in H1 2010. US and Europe were the largest markets for the company. However. the company has undertaken new product launches in chronic segment and plans to add therapy areas (gynaecology. India remains the largest market for the company where the company figures amongst top 3 players in domestic prescription pharmaceutical market. Thus. besides liquidity issues in distribution channel.630 Crore revenues) followed by Africa.Pacific. RLL’s management has indicated significant progress being made on the resolution of USFDA. In Europe. the company’s performance was adversely impacted in 2009 following new healthcare regulations. the benefits of the same was limited by presence of authorised generic. Among the developed markets. RLL exited its existing JV in Japan. Over the last eight quarters. Among emerging markets.

Despite volatility in operating performance. infrastructure. Additionally in 2008. there have been synergies identified across geographies. ICRA Rating Services Page 4 . In March 2010. the RLL. Daiichi Sankyo is a global innovator pharma company figuring among the top 20 pharmaceutical companies. Daiichi Sankyo has also launched its innovator products in key emerging markets that include India and Romania leveraging marketing and distribution infrastructure of RLL. These funds also allowed the company to repay part of its debt. As a part of the Hybrid business model. Recent Results: The company reported consolidated revenues of Rs. the management has revisited operations in some specific countries. RLL derived around 54% of revenues from emerging markets.9x. with some revival in performance in 2009 and reduced debt levels.Daiichi Sankyo Group announced the hybrid business model with Daiichi Sankyo focusing on innovator products (largely developed markets) and RLL focusing on generics in both developed as well as emerging markets.8%. However. 3. Going forward. Subsequently.4% in FY10 to 24% in FY13 besides driving growth in Daiichi Sankyo’ innovator products leveraging on RLL’s marketing and distribution strengths in emerging markets. Business Risk Analysis Integration of RLL with Daiichi Sankyo. Daiichi Sankyo unveiled its second mid-term business management plan (Fiscal 2010-12). 39% from developed markets (North America and Europe) with the balance being accounted for by others (7%). The company has manufacturing operations in 7 countries. Daiichi Sankyo announced its foray in Japanese generics market through its 100% subsidiary Daiichi Sankyo Espha. In FY2009.9%) in the company by way of purchase of promoter stake of 34. RLL would undertake product development and manufacturing while branding and distribution of generics in Japan would be done leveraging brand equity and distribution infrastructure of Daiichi Sankyo. While the company has been consciously increasing its presence in the emerging markets. In 2009. Daiichi Sankyo has significant presence in cardiovascular. Increasing focus on emerging markets. Daiichi Sankyo Pharmaceutical Company Limited. while continuing to grow developed market generics business Between 2005 and 2009. synergies have been announced in both front end and back end. the company’s financial profile remained moderate (net gearing of 1. Company Profile Ranbaxy Laboratories Limited is amongst the largest pharmaceutical company in India (in terms of revenues) having ground operations in 46 countries through a web of affiliates.585 crore by Daiichi Sankyo in 2008 strengthening company’s net worth. (for innovator and generic launches) besides the research and development initiatives. In the future RLL’s R&D endeavours would be restricted to generic product development and the existing drug discovery research business has been hived off to Daiichi Sankyo India Pharma Private Limited. both through organic and inorganic route as evident from the share of emerging market in sales mix at 54% in 2007. Japan acquired majority stake (63. RLL’s capital structure has improved with net gearing of 0.2 billion in H1 calendar 2010 and profit after tax of Rs. with rupee strengthening. joint ventures and alliances. to consolidate and create value through further efficiencies and cost synergies. the company derived 49% of its revenues from prescription drugs in Japan and 40% from overseas operations followed by 6% from OTC and balance from others. 49. The mid-term plan envisages increase in contribution of RLL in Daiichi Sankyo’ sales revenues from 15. Thus. Additionally. About Daiichi Sankyo: With revenues of Yen 952 billion in March 2010. Japan and discontinued manufacturing operations in Vietnam. the adverse regulatory actions of USFDA impacted the sales of RLL in last two years. the company’s net profits were adversely impacted by notional losses on forex borrowings as well as mark to market losses from large derivative transaction. 12. preferential issue and open offer. As a part of integration process with Daiichi Sankyo. the company reported notional gain on forex borrowings as well as MTM gains in 2009.ICRA Credit Perspective Ranbaxy Laboratories Limited enjoyed by Valacyclovir. anti-infectives segments globally. This would result in annual US$ 20 million reduction in R&D budget for RLL. Pursuing Hybrid business modelPost acquisition of RLL. though coverage indicators remain relatively moderate. the share of emerging markets in the sales mix of RLL has increased from 44% to 54%.95 billion. Thus.1x) with infusion of Rs. In 2008. RLL exited its JVs in China. In the past few quarters.

2 billion in 2008 in US) in November end during calendar 2009. However. The decline in US sales was to an extent arrested in Q4 2009. the regulatory actions restricting the number of products in US resulted in RLL’s sales in US declining by 15% in 2009 over previous year.ICRA Credit Perspective Ranbaxy Laboratories Limited Chart 1: Trend in Geography wise sales of RLL Source: Company Annual Reports and Presentations In 2008. RLL’s sales in calendar 2009 in dollar terms witnessed a sharp decline over the corresponding previous led largely by decline in US and Europe sales. in Q4 2009. on account of pricing pressures (and market specific factors) in Europe and ban on imports of 30 products in US (from September 2008). In the US. Poland and Italy with the company having significant presence in Romania. RLL’s US revenues remained robust in Q1 2010 with the benefit from exclusivity continuing partly in Q2 2010 also. The emerging markets.4 356 Q4 2009 68. Emerging markets grow in Q1 2010 As evident from table.9 15. By virtue of RLL’s six month exclusivity on the product. Annual Report In Europe. The European market (RLL’s revenues of US$ 269 billion in 2009) continued to post decline in 2009 on account of change in company’s strategy to focus on profitable business. While US has been the single largest market for the company in last few years.7 12 36 44 16.1 28 158 17 21 31 28 61 19 35 482 24 41 542 Q1 2010 65 10 39 251 13 19 24 14 43 39 146 14 19 20 19 45 24 26 450 Q2 2010 98 Source: Company Releases. sales of US$ 2. RLL’s sales in US reported a sharp growth led by strong growth in base business and significant contribution from launch of valacyclovir (GSK’s Valtrex. Table 1: Trend in Market-wise Sales US$ million India Consumer Healthcare India Africa US Canada Latam CIS Asia Pac Europe Romania API and Others Total 2008 299 44 130 393 55 74 111 100 223 107 130 1667 2009 293 44 125 334 63 71 86 100 193 76 112 1519 Q1 2009 66 6 26 68 13 11 17 22 38 19 27 313 Q2 2009 81 11 35 62 17 17 15 24 43 21 42 368 Q3 2009 74. the adverse regulatory actions in 2008 resulted in decline in US revenues in 2008 and 2009 with Q3 2009 witnessing the lowest level. Germany. reported a 7% growth in 2008 offsetting the decline in sales in US and Europe.9 21 23 26 50 17 35. RLL’s sales in US and Europe taken together declined marginally. France. subsequent to launch of exclusivity product (Valacyclovir in November 2009). the company has presence in UK. While sales de-growth in Romania was account of ongoing healthcare reforms in the country. however. the company witnessed significant pricing pressures in other key European market and thus focused ICRA Rating Services Page 5 . US sales recover from Q4 2009 onwards.

with the company’s cumulative ANDA filings at 204. Some of the inorganic growth initiatives included acquisition of marketing companies in France. 2009. With reduced off-take by trade (changes in pricing regulations resulted in reduced off-take from wholesalers). RLL’s sales in Asia Pacific (excluding India) sales remained stagnant in 2009 followed by a decline in H1 2010 partly on account of divestment of stake in subsidiaries in China and Vietnam during 2009. UK. Asia (excl India). with the company remaining figuring among the top three players in domestic branded formulation market. of which 138 have been approved and 66 pending approval (addressing innovator sales of US$ 45 billion). Germany and Romania (Terapia. Currently. Additionally. From September 2008 till June 2009. However. the company’s branded generic portfolio had shrunk post import ban. RLL has a well established presence with presence in 23 of the 25 EU markets. Germany were the significant contributor to revenues for the company with significant proportion of revenues derived from tender business in UK and Germany. RLL’s sales in US declined from Q3. Nevertheless. Of these. In India. growth rate in US revenues improve from Q4 2009 led by growth in base business as well as benefits from exclusivity As discussed earlier. many of the key products of RLL were impacted and the company could not market these products post ban on Poanta Sahib. Of the ANDAs approval. With the implementation of this ban and AIP. In 2009. After two years of revenue decline (in constant USD terms). 1 generic and OTC player in Romania. Additionally. ICRA Rating Services Page 6 . it was able to launch Valacyclovir on time and it monetized Tamsulosin (unable to secure FDA approval on time) through settlement. the company consciously rationalized its operations and exited the branded formulation business in UK. RLL continues to have a healthy pipeline of products. Source: Company Releases The adverse regulatory actions had initially impacted RLL’s relations with distributors in the US.ICRA Credit Perspective Ranbaxy Laboratories Limited on maintaining a profitable business rather than achieving sales growth. However. Among the emerging markets. US Revenues adversely impacted by regulatory actions till Q3. Spain (GSK’s Generic business Mundogen acquired in 2006). The company’s ability to monetize this exclusivity would depend on successfully undertaking a site transfer prior to the settled deadlines. RLL missed Sumatriptan on account of delay in site transfer. RLL has FTF status (attached exclusivity period) on 12. the company expects base business of US$ 200 million per annum from US to be sustainable from now on. RLL closed down manufacturing facility and rationalised its manpower during 2009. CIS and Latin America are key markets. the management’s strong execution capability and ability to launch exclusivity products strengthened the confidence of distributors contributing to revival in base business in US. India. The sales performance in Romania during 2009 was impacted by new pricing regulations. The company’s US sales in 2008 and 2009 (till Oct 2009) were largely the base business (no exclusivity revenues included). France. Valacyclovir and Tamsulosin. In 2009. this had some adverse impact on the ANDA pipeline for the US. RLL continues to have a marketing presence in these markets as they are important pharma markets and expects turnover to improve in the medium term. the company had three key launches in the US. However. RLL’s subsidiary—Terapia is No. a significant acquisition). Romania. RLL’s primary focus remains branded formulations. however. RLL’s sales in Romania have reported a sharp growth in H1 2010 over the previous year. especially the FTF/exclusivity products. 2008 on account of import ban on 30 products (originating from Dewas and Poanta Sahib facilities) and subsequent AIP being invoked against Poanta Sahib facility. Italy (Allen acquired in 2006). multiple healthcare reforms in process and severe liquidity crunch in trade channels. However. based on the changing pricing environment. Africa. In the past the company has grown its presence in Europe through a mix of organic and inorganic growth initiatives. The restructuring efforts in Europe have started paying off with the company reporting a healthy growth in revenues in H1 2010.Sumatriptan (100 mg strength). Europe is the third largest market for RLL In EU. the company has plans to get into value added formulations going forward.

6 428 5. for which the benefits are expected to come from Calendar 2011. CIS is an important market for the company. Although the opportunity in the short to medium term may not contribute significantly to RLL’s revenues. Brazil and Mexico and has plans to scale up its business. new drug discovery being integrated with parent RLL’s R&D efforts are directed at development of non infringing processes for bulk actives and formulations for generics market of regulated countries. with significantly stronger presence in South Africa and Nigeria. Under this project. especially in developed markets. Nevertheless.5 2007 423. RLL has already started undertaking filings and with the approval time of 26-28 months. Nevertheless.7% Revenue R&D/ OI 6. India remains the largest market for the company (US$293 million in 2009) followed by Africa (US$125 million). Additionally. there exists some uncertainty on account of introduction of reference pricing norms that may impact performance in Russia going forward.4 5.9 6. Table 2: Trend in R&D Expenditure R&D Expenses (Capital) R&D Expenses (Revenue) 2006 395. RLL has recently embarked upon Project Viraat for attaining leadership position in domestic market by increasing penetration especially in the rural areas. the company expects sizeable revenues and profits to accrue in three years time frame.5 in S. 2 in Nigeria and No. Continues to explore growth opportunities to strengthen presence in Other Emerging markets: With around US$100 million annual sales. RLL has been aggressively launching new product with 42 new launches in 2009 followed by over 50 launches in H1 2010. and Asia Pacific (US$100 million). the company has witnessed healthy growth in H1 2010. Strong market position in India. R&D focus continues on generics. RLL had gone slow in expansion in Russia because of liquidity issues in 2009. RLL has long standing presence in key markets in Latin America i.3% 2008 46. Annual Report While RLL had built a strong ANDA pipeline for US as well as filings in other markets till 2008. the company’s R&D budget has been growing with RLL spending around 6-7% of its revenues in R&D annually. ICRA Rating Services Page 7 . RLL also has substantial OTC business in Africa. RLL ranks No.ICRA Credit Perspective Ranbaxy Laboratories Limited BRICS region identified for growth In the emerging markets.e. its presence in these markets remains limited. ophthalmology. significant thrust on product development and investments in manufacturing infrastructure RLL plans to foray in the Japanese Generics market in collaboration with Daiichi Sankyo’s 100% generic subsidiary (Daiichi Sankyo Espha) in Japan. Although CIS and Latam are the other markets where RLL is present. Although RLL has increasingly launched products in chronic segment. the adverse regulatory action by USFDA has to some extent slowed down the approvals for filings undertaken by the company in last two years. The company has well established brands with 18 brands figuring among the top 300 brands (Source: Company Annual Report) of the industry. its product mix is skewed towards acute segments. however. CNS.8 431. Thus.5% Source: Company Releases. project Viraat aimed at attaining leadership position: RLL figures among the top three players in the domestic formulations market with a market share of 4. the company intends to expand its field force to 4. development of new drug delivery systems and new drug discovery research. vaccines. Africa generics market with presence in both branded and tender market.8%. a strong marketing and distribution network with 2500 persons field force in 2009.8% 2009 55. the company expects its initiatives to start giving results from 2012 onwards. Nevertheless. Japanese Generics identified as a key driver for long term growth. Africa is an important market for RLL wherein the company has presence in 43/54 countries in Africa and strong brand equity. the company is expanding its therapy areas in domestic market to add gynaecology. the company has invested significant amount for creating manufacturing infrastructure in India and US and has started product filings from such locations. The company plans to launch products from portfolio of Daiichi Sankyo in six African markets.000 (from 2500 in 2009) for targeting rural and extra urban markets to increase its penetration in tier 2 cities and rural areas leveraging its network and product distribution strengths.

RLL had issued 4.0% -24. RLL had paid off some of its loans in 2008. RLL’s sales were affected by weaker sales performance during the first nine months when the company witnessed significant decline in US revenues. 3. Additionally. improved product mix and favourable forex movement allowed the company report operating profits.7 -10.7 -141. higher revenues from exclusivity product (FTF sales in US). These warrants could be excercised between 6-18 months of date of allotment.9x in 2009 from 1. However.4% -17.3% 2008 9. however. majority of forex losses due to dollar movement were reversed with strengthening of rupee. there would be some increase in employee costs.412 655 372 242.0% 46.63 lakh shares to Daiichi Sankyo on preferential basis at Rs. In the short term.127 889 698 58. While the company has been witnessing increased cost pressures related to site transfers.8 crore.7% 4. ICRA Rating Services Page 8 .8 543.6% 17. the company booked some profits on sale of these investments in 2009 resulting in increase in non operating income. it would be able to get significant cost savings. 737 per share with 10% amount paid upfront (Rs.4 999 787 678 11.1% 10.1x in 2008.8% -12. 737 per share aggregating to Rs.7 crore).594.3% -29.3409 crore and 2. 175.2 -1.9% 2007 6. Additionally. However in H2 2009. with the scaling up of field force (Project Viraat). Comfortable financial risk profile Subsequent to Rs. ICRA Estimates Adverse forex movement negatively impacted RLL’s financial performance in 2008 and in H1 2009. RoCE.848 -935 1.6% -14.7% 2009 7.6 811.5% 2008 7. costs of consultants for resolving FDA issues as well as restructuring costs. 149.774 791 528 621. 321.4 651 515 345 14.0% *adjusted for FV loss on derivative transactions and loss on restatement of forex borrowings Source: Company Annual Report. the company also reported gain on restatement of forex borrowings (Rs. cost control initiatives across geographies.5% 8.4 207.0 539 471 311 108 10. which resulted in the company reporting gain on fair valuation of derivatives (Rs.1 349 -1.6% -11.6% 2009 2.585 crore funds3 infused by Daiichi Sankyo. with this equity and warrants issue. the net worth of the company strengthened resulting in improvement in capital structure in 2008.5% 24. included in exceptional income).3 crore in 2009 included in exceptional items).196 8. this was partly offset by strong revenues from one off (180 day exclusivity for valacyclovir) as well as growth in emerging markets resulting in overall stagnant revenues for RLL in 2009.38 crore warrants at Rs. Japan and Vietnam. Strong accruals in 2009 resulted in improvement in net gearing to 0. Table 3: Trend in Profitability Indicators Rs. As RLL exited some of its ventures in China. remains weak In 2009. 3 In October 2008.8% Growth (%) 2007 10. exclusivity revenues and favourable forex movement drive operating profits in 2009.7% 11. Crore 2006 Operating Income OPBDITA OPBIT Non Operating Income Non Operating Expense PBT Extraordinary Items PAT NCA* OPM NPM RoCE 6.ICRA Credit Perspective Ranbaxy Laboratories Limited Financial Profile Stagnant revenue growth.2 -60. if the company is able to resolve FDA issues soon. Additionally. though improving.4% 14.

9 5% 11.7 7. 1667 crore relating to payables towards unrealized loss on currency options. the company’s payables also increased in 2009 largely related to its raw material suppliers.5 5.2 4.0 Source: Company Annual Report. Nevertheless.5 4311.6 3675.5 3629.7 1. ICRA Estimates Marginal increase in Working Capital intensity despite sharp rise in debtor levels RLL’s debtors increased sharply in 2009 largely on account of higher level of shipments of its exclusivity product Valacyclovir at the year end.5 295.7 2008 6987.5 437.ICRA Credit Perspective Ranbaxy Laboratories Limited Table 4: Trend in Capitalisation and Leverage Indicators Rs.9 1.6 4. Table 5: Trend in Working Capital Intensity 2006 NWC/OI Debtors Days Creditors Days Inventory Days 39% 95 81 161 2007 33% 81 76 145 2008 30% 67 86 157 2009 37% 91 112 140 Source: Company Annual Report.1 6% 3.6 0.4 6. ICRA Estimates 4 Total Debt includes the current liability amounting to Rs.7 1.9 1.3 1.4 4.4 4277.0 2566.6 5.3 16% 5.2 10.1 2007 4141.6 1.4 9% 8.5 4336.1 1.0 2009 5296.7 4141. Crore Total Debt Total Debt (excluding payables on unrealized loss of currency option) TNW Gearing Cash Net Gearing Adjusted NCA/Total debt Interest Cover Debt/OPBITDA Net Debt/ OPBITDA 4 2006 3955. ICRA Rating Services Page 9 .7 2784.6 2395.2 1241.

600 crore short term A1+ A1+ A1+ bank facilities* Rs. 700 crore CP/ STD A1+ A1+ programme *In June 2008.3 billion.ICRA Credit Perspective Ranbaxy Laboratories Limited Annexure Rating History Amount Outstanding Maturity Date Rating Outstanding Previous Ratings July 2010 July 2008 June 2008 Rs. the total bank facilities rated amounted to Rs. 1. which were subsequently reduced to Rs. 6 billion in July 2008. ICRA Rating Services Page 10 .

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