After Ranbaxy disappointed the street with a consolidated operating margin of 4.3 percent versus 9.3 percent year-on-year for Q3, Sarabjit Kaur Nangra, VP - Research Pharma, Angel Broking said the loss in the US market led to the miss on the topline.
Speaking to CNBC-TV18, Nangra said on the bottomline, margins suffered due to forex loss. The drug maker reported a forex loss of Rs 132.6 crore versus gain of Rs 10.1 crore from a year ago period.
The underperformance in the US market and the fall in demand for Diovan generic, which is used to treat high blood pressure, led to such severe loss in Ranbaxy’s Q3 earnings, added Nangra.Below is verbatim transcript of the interview:
Q: At first glance does these numbers look like a big miss?
A: Definitely a big miss. We were expecting good jump up in the quarter because of Diovan and that is reflected even in the sales coming lower-than-expected and definitely profitability consequently taking a hit. Hence, a loss coming in because there is nothing very extraordinary and in spite of that there is a loss and so, definitely a big miss.
Q: What do you think could have missed the mark?
A: Definitely US. On the topline it will be US but on the bottomline, one, margins have been lower. However, one part of that is actually forex loss which they have reported. Otherwise if I adjust that or normalise without any forex gain or loss then it is an operating margin of around 8 percent which is decent, which is just a 100 basis point drop from the year-on-year number. So, operationally, it is decent but less than expectation.
Normally, Ranbaxy doesn’t do beyond 8-10 percent. So, if I adjust for forex its operating margins are decent enough but definitely a big miss.
Q: The US market seems to have underperformed this time. Do you think Absorica besides Diovan could be another reason why the US market might not have performed at par?
A: No. Prime reason possibly is US and I would like to see other markets also but I do not think apart from Diovan there could be major disappointment because it is also reflecting on the operating margins. Otherwise there is no reason that operating margins would come in so low.
Q: Do you think the fact that the USFDA issues have now begun weighing in terms of their sales which they are incurring on a daily basis in the US markets, that is there is a loss in market share because of loss of confidence that consumers have, is that one of the reasons you would possibly pose?
A: No but adjusted for its one-off the company has been doing EBITDA margins in the range of 6-8 percent. So, from that context if you remove the one-off the company is still doing the same level of operations as it was doing earlier.
The tax component in the quarter is much higher and that’s why the PAT is completely depressed. However, if you look at before tax it is primarily one-off not playing the way it should have played out in the quarter.
Q: What would you look at in terms of geographies, the CIS performance as well, do you think Russia has a part to play in terms of the margin performance we are seeing this quarter?
A: Besides US, India and Russia.
Q: Russia, the Rouble depreciation impact how much of a impact could it have had on the P&L this time?
A: Difficult to decipher at this point in time because in terms of profitability if company has managed adjusted for extras a quarter in the range of around 7-8 percent then it is one variable that has gone wrong for them is US. I think rest of them would have been somewhere around about only, I do not think there should be much deviation from its current operations.
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