Ranbaxy Laboratories (Ranbaxy) reported loss of INR29bn during CY11, primarily due to provision for settlement with US Department of Justice (DoJ) and forex losses on currency options and loans. With depreciation in INR continuing in Q2CY12, forex losses are likely to continue. Cash conversion cycle improved purely on the back of high creditor days of 224 in CY11 (CY10: 174), but looks unsustainable.
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Profit sharing with Teva and DoJ provision spoilsport
Ranbaxy’s net sales surged 13.4% from INR89.8bn in CY10 to INR101.8bn in CY11. However, EBITDA margins declined from 21.1% in CY10 to 15.9% in CY11, primarily due to profit sharing arrangement with Teva on sale of Lipitor during exclusivity having EBITDA margin of 49% (CY10: FTF sales of Valacyclovir and Donepezil with EBITDA margin of 88.4%). Base business margins also remained flat at 8.0% (CY10: 8.2%).
Surprisingly, claims and contractual payments pertaining to profit payable to Teva on sales of Lipitor in the standalone financials stood at INR15.2bn in CY11 vis-à-vis consolidated financials of INR7.2bn.
Ranbaxy reported net loss of INR29.0bn due to provision of INR26.5bn (USD500mn) for settlement with US DoJ to resolve all potential civil and criminal liability.
Forex losses further adds to the woes
Ranbaxy’s o/s currency option position continued to decline, from USD846.5mn in CY10 to USD654.5mn in CY11. Net forex loss for CY11 stood at INR14.5bn (CY10: gain of INR5.5bn), of which, currency options comprised INR11.2bn. Further, depreciation in rupee is likely to hit the company’s profitability (taking Q1CY12 forex gain/loss run-rate, 1% rupee movement results in ~INR0.9bn forex gain/loss).
Cash conversion cycle improves … creditors whether sustainable?
Cash conversion cycle improved from 106 days in CY10 to 83 days in CY11 owing to increased creditor days from 174 to 224. On absolute basis also, creditors increased from INR19.0bn in CY10 to INR29.1bn in CY11; 83% of CY11 raw material consumed (CY10: 60%). Inventory days and debtor days have increased to 223 and 83 respectively (CY10: 210 and 70).
Other financial highlights
Accumulated losses at CY11 end are more than 50% of the company’s net worth.
Goodwill (INR19.2bn) and MAT credit entitlement (INR8.4bn) together contributed 95.9% of CY11 networth (CY10: 48.7%).
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