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| Ranbaxy's woes continue
Ranbaxy Laboratories' stock declined by a considerable 23.4% since September 17 when the US Food and Drug Administration banned the import of 30 different generic drugs to US from Ranbaxy. This was because Ranbaxy's two facilities, Paonta Sahib and Dewas are said to have certain manufacturing deviations from the US current good manufacturing practice (cGMP).
Ranbaxy products under scanner in more countries
Experts are not looking at this development kindly. Ranbaxy's profitability is expected to hit significantly because of the ban. Analyst Hemant Bakhru of CLSA Asia-Pacific Markets writes in a report on September 22, "We estimate that the US FDA ban on c.30 Ranbaxy products would potentially have 30% plus impact on CY09 profits. While CY08 profits would have minimal impact from the ban, reported numbers would be substantially hit by translation losses (Rs 400 crore plus) and losses on forex hedges."
Daichi says offer for Ranbaxy oversubscribed
The banned drugs include popular products like generic for the cholestrol reducing Zocor, Metformin (generic for treatment of Type 2 diabetes) and anti allergic generics for Claritin and Alavert. Ranbaxy's branded product, Sotret will also be hit by the ban and contributes around $50-60 million to the revenues. Overall analysts expect one-third of US revenues to be adversely hit due to the ban.
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Moreover, the time to resolve this issue is uncertain. If Ranbaxy prolongs the issue, then its customers would have changed its sources of supply in the long run.
If that happens, then the company would find it difficult to regain the existing US business. Other markets could also be led by the US although analysts maintain that they may not be as stringent as the US. Apart from these concerns, the return of unaccepted shares in the open offer is likely to put further downward pressure on the stock.
In June 2008, promoters of Ranbaxy agreed to sell 34.82% of their stake in the company to Japanese drug maker, Daiichi Sankyo. Accordingly, Daiichi made an open offer to acquire an additional 20% for 9.25 crore shares for Rs 737 per share.
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At Rs 310.80, the stock trades at 19.6 times at its estimated earnings for 2009. Near-term appreciation looks bleak. Analysts recommend staying away from the stock given the uncertainties.
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