Ranbaxy: On acquisition spree
Niraj Bhatt & Priya Kansara
Ranbaxy has followed a strategy of buyouts and joint marketing of its products to garner higher exports sales.
The Ranbaxy acquisition machinery chugs along, buying South African Be-Tabs Pharmaceuticals on Friday. The deal at 2.2 times Be-Tabs’ sales and 7.7 times EBITDA (earnings before interest tax and depreciation) does not look expensive as compared with other previous deals.
Ranbaxy had paid about 4 times for purchasing Romania-based Terapia, though that is because the latter is a much larger company as compared with Be-Tabs.
Ranbaxy has followed a strategy of acquisitions as well as joint marketing of its products to garner higher exports sales.
In 2006, it has acquired Terapia, Glaxo’s generics units in Italy and Spain and Ethimed in Belgium. While so far, its acquisitions were mainly targeted at the fast-growing markets in Europe, Be-tabs gives it access to another high-potential market.
With medicine sales of $2 billion a year, South Africa is the largest market in Africa, with good growth in generics. Be-tabs is the fifth largest generics player in South Africa with a turnover of about $30-32 million.
It is the country’s largest penicillin manufacturer, it has presence in ethical and OTC products. Besides, Ranbaxy’s sales in South Africa, which had declined 26 per cent in the September quarter, will get a fillip after this purchase.
At Ranbaxy, things have changed for the better. Just last December, a US court had disallowed the company to sell atorvastatin in the US market, which was a blow to the company, as it was coupled with a deteriorating financial performance.
But since the March 2006 quarter, the company has performed much better because of higher simvastatin sales, and strong growth in the European markets, helped by its acquisitions.
In the September 2006 quarter, sales in Russia, Ukraine and Romania jumped 188 per cent to Rs 202 crore, helped by Terapia. Its operating profit margin improved 1360 basis points y-o-y to 16.7 per cent in the September 2006 quarter.
Though the financials have improved, the Ranbaxy stock price has been a major underperformer over the past year—it has declined 3.5 per cent while the Sensex is up 55 per cent.
Based on Friday’s closing price of Rs 383, the Ranbaxy stock seems expensive at 27 times estimated CY06 earnings and 20 times CY08 earnings.
Source:
