A number of one-off factors depressed Ranbaxy’s performance in the latest quarter. An increase in costs to resolve issues with the US Food and Drug Administration (FDA) at its Mohali facility and dismal sales in the domestic market dragged the company’s operating margins. Operating margins adjusted for forex fluctuations and contractual expenses declined by 2.5 percentage points on a sequential basis to 8.3 per cent.
Even as sales in East Europe-Russia and Romania, Asia Pacific and Latin American markets continued to grow, performance in key markets — US and India — were weak during the quarter.
Sales in the home market declined almost 2 per cent, compared with the same period last year, due to a strike by pharma distributors demanding higher trade margins, in addition to price cuts on essential drug brands mandated by the new pricing policy. This impacted sales of drug brands which were outside the purview of price control. Resolution of issues with the trade will be critical for Ranbaxy.
Even as the base business in US remained flat, Ranbaxy managed to gain share in its branded acne drug, Absorica. However, during the quarter, the company changed its accounting system for incentives given to promote the drug brand. Incentives which were hitherto accounted as expenses have now been adjusted against sales. Hence, US sales were lower to that extent in the quarter. This may have a bearing on US sales in the subsequent quarters, too.