ICRA Credit Perspective

RANBAXY LABORATORIES LIMITED

Relationship Contact Rating

ICRA has reaffirmed the A1+ (pronounced A one plus) rating to Rs. 600
Vivek Mathur crore short term working capital facilities of Ranbaxy Laboratories
vivek@icraindia.com Limited (RLL) . ICRA has also reaffirmed the A1+ rating to Rs. 700 crore
+91-124-4545 310 short term debt/ commercial paper programme of RLL.

Analytical Contact (Refer Annexure for Rating History)

Subrata Ray
subrata@icraindia.com Key Financial Indicators
+91-22-3047 0027 Rs. crore

Anupama Arora 2007 2008 2009

anupama@icraindia.com Net Sales 6,641 7,223 7,327
+91-124-4545 303
Operating Income 6,774 7,412 7,595
OPBDITA 791 655 812
Profit after Tax 774 -951 296
Equity Capital 187 210 210
Net Worth 2,785 4,278 4,336

July 2010
OPBDIT/Operating
Income (%) 11.7% 8.8% 10.7%
PAT/Operating
Income (%) 11.6% -12.6% 4.1%
PBIT/avg. (Total
Debt + Net Worth +
DTL – Capital work-
in progress) (%) 17.5% -14.7% 10.8%
OPBDIT/Interest &
Finance Charges
(Times) 5.6 3.2 11.4
Total Debt/
OPBITDA 5.2 10.7 6.5
Net Debt/ OPBDITA 4.7 7.0 5.0
Total Debt/TNW
(Times) 1.5 1.6 1.2
Net Debt/ TNW
(Times) 1.3 1.1 0.9
CWIP: Capital Work-in-Progress; DTL: Deferred Tax Liability; OI:
Operating Income; OPBDITA: Operating Profit before Depreciation,
Interest, Tax and Amortisation; PAT: Profit after Tax; PBIT: Profit before
Interest and Tax; NCA: Net Cash Accruals; TNW: Tangible Net Worth

Website: For complete rating scale and definitions, please refer to ICRA’s
www.icraratings.com website www.icra.in or other ICRA Rating Publications.
ICRA Credit Perspective Ranbaxy Laboratories Limited

Credit Strengths
 Majority stake (63.9%) held by Daiichi Sankyo, Japan (rated A1/Stable Outlook by Moody’s Investors
Services); Focus on creating hybrid business model with Daiichi Sankyo focusing on innovator products
(largely developed markets) and RLL on generics in both developed as well as emerging markets
 Diversified geographic presence with ground presence in 46 countries; well entrenched in generics
market of key regulated countries and positioned amongst the top 10 global generic companies
 Healthy First to File (FTF) pipeline for US; however, monetization depends upon ability to successfully
undertake site transfers in the backdrop of ongoing regulatory action on Poanta Sahib and Dewas facility
 Growing share of high growth emerging markets; Strong presence in branded generic markets in semi-
regulated markets including India
 Vertically integrated operations with large number of product filings across the globe
 Strong R&D capabilities helped in development of broad based product mix (therapeutic profile) and
healthy generic product pipeline in developed markets

Credit Concerns
 Ban on imports from Poanta Sahib and Dewas facility impact exports to US; In the backdrop of RLL’s
large dependence on US market, such regulatory actions subjects company to significant volatility in
revenues as well as profits
 Profitability and cash flows, especially from key regulated markets continues to exhibit high degree of
volatility;
 Ongoing healthcare reforms in US may restrict settlements for generic players and may future growth
plans of Indian generic pharmaceutical companies
 Significant exposure to forex fluctuations with over 75% of revenues from international sales; in the past
RLL had hedged exposures using derivatives which resulted in mark to market (MTM) losses since forex
movement was adverse
 Globally generic pharmaceutical business is characterized by low entry barrier and strong pricing
pressure arising from cost based competition

Rating Rationale
The rating reaffirmation continues to factor in RLL’s strong parentage (63.9% held by Daiichi Sankyo Co. Ltd,
rated A1/ Stable by Moody’s Investors Services), diversified geographic mix, strong R&D capabilities, vertically
integrated operations with large number of product filings across the globe and growing share of high growth
emerging markets in company’s geographic revenue mix coupled with healthy pipeline of exclusivity products for
US. Subsequent to acquisition by Daiichi Sankyo, there have been various synergies identified and the Daiichi
Sankyo Group is focusing on creating a hybrid business model to address both innovator products market and
generics market globally. The rating factors in RLL’s diversified geographic mix with strong presence in select
developed markets and emerging markets. RLL figures amongst the top three players in India, with strong
coverage across therapeutic segments and regular introduction of new products. The rating also factors in RLL’s
healthy capital structure and moderate coverage indicators.

RLL’s financial profile, however, continues to be impacted by adverse regulatory actions from the US regulator
(USFDA) involving drugs manufactured from three of its US FDA approved facilities. In the last two years, there
has been volatility in RLL’s financial performance especially profitability indicators and cash flows since Q3
calendar 2008, partly on account of this. Despite such regulatory actions, RLL has been successful in monetizing
some of its exclusivities in US reflecting the strong execution capabilities of the management. Thus, there has
been improvement in company’s profitability and cash flows since Q4 2009 with the company benefitting from
valacyclovir exclusivity, cost containment initiatives of management and sale of non core assets. ICRA, however,
would continue to monitor developments relating to the resolution of such regulatory issues. Additionally, the
company’s profitability in the past has been partly dependent on exclusivity products in the US, including product
launches after settlement with innovators, leading to sharp fluctuations. The ongoing healthcare reforms in the US
may restrict settlements with innovators in future impacting generic players in the US market. Notwithstanding
these issues, the rating factors in company’s ability to increase its presence in high growth emerging markets in
the medium to long term.

With revenues of over Rs. 7,500 crore, RLL is amongst the largest Indian pharmaceutical companies with
presence across geographies. RLL is an integrated player with presence across research, manufacturing and
marketing of active pharmaceutical ingredients (APIs) and formulations. The stake of the original Indian promoters
in the company was acquired by Daiichi Sankyo Co. Ltd (Daiichi Sankyo), Japan in June 20081 for Rs. 9,576
crore. Subsequently, Daiichi Sankyo invested around Rs. 3,585 crore through preferential allotment of shares and
warrant issue besides an open offer during 2008.

1
Announcement was made in June 2008, but actual stake transfer took place by November 2008.
ICRA Credit Perspective Ranbaxy Laboratories Limited

RLL’s sales mix can be broadly divided into revenues from Developed Markets and Emerging Markets with
Emerging markets accounting for 54% of the company’s revenues in 2009, up from 44% in 2005. Among the
developed markets, US accounts for 22% of the company’s consolidated revenues followed by Europe (12.7%).
Among the emerging markets, RLL has strong presence in India (Rs. 1,630 Crore revenues) followed by Africa,
Asia- Pacific, CIS and Latin America. With strong growth expected in emerging markets in the medium term, RLL
is pursuing strategies to enhance its presence in emerging markets even as it continues to grow in developed
markets, especially in US.

In the past till 2008, US and Europe were the largest markets for the company; however, in 2008 company faced
adverse regulatory action from USFDA that banned imports of 30 molecules from the company’s Poanta Sahib
and Dewas facility followed by ‘Application Integrity Policy’ being invoked against Poanta Sahib plant in Feb 2009.
These factors resulted in sharp decline in exports to US for a few quarters (Q42008 to Q32009), the largest
market for the company. Further in December 2009, RLL witnessed adverse FDA action at its Gloversville (US)
facility.

Notwithstanding these constraints, RLL was able to capitalise on two of the three FTF opportunities that became
due between Sept 2008 and March 2010 through a combination of site transfers and settlements. While the
company launched Sumatriptan 100 mg in August 2009, the benefits of the same was limited by presence of
authorised generic. However, launch of Valacyclovir by undertaking site transfer to its Ohm Labs facility (in US)
resulted in sharp increase in company’s sales in US since Q4 20092 besides strong operating profits. Additionally,
RLL also benefitted from settlement for launch of Tamsulosin (launched by generic competitor) in Q1 2010.

Over the last eight quarters, the company took corrective actions to address USFDA issues, which included
tightening controls at the manufacturing facilities, appointment of consultants and working towards a corrective
action plan. RLL’s management has indicated significant progress being made on the resolution of USFDA- DoJ
issues, however, firm timelines of such resolution have not been indicated. Nevertheless, the company’s ANDA
pipeline (12 FTFs as on March 2010) remains healthy and the management is confident of adequate back up
plans to capitalise on these opportunities.

In Europe, the other large market for RLL, the company faced significant pricing pressures on account of changing
regulatory environment till 2009. Amongst the developed European markets, RLL has presence in UK and
Germany, with significant exposure to tender markets. With the change in management and changing pricing
environment, the company has switched its focus on European markets from topline growth to bottomline. Thus,
the company undertook restructuring initiatives to reduce its sales force in UK and Romania besides closing down
a manufacturing facility at Bucharest, Romania during 2009. The benefits of these initiatives in the form of lower
cost base contributed to RLL’s operating performance in H1 2010.

Among emerging markets, India remains the largest market for the company where the company figures amongst
top 3 players in domestic prescription pharmaceutical market. Although RLL has presence across therapeutic
segments, its product mix is skewed towards acute segments. Nevertheless, the company has undertaken new
product launches in chronic segment and plans to add therapy areas (gynaecology, ophthalmology, vaccines,
CNS) in domestic market. Recently, RLL has embarked on ‘Project Viraat’ to strengthen its leadership position in
domestic market.

In Romania, RLL’s subsidiary company— Terapia is the largest company in the generic pharmaceutical and OTC
market. However, the company’s performance was adversely impacted in 2009 following new healthcare
regulations, besides liquidity issues in distribution channel. However, there was some recovery in sales in the first
two quarters of 2010. The other important markets for RLL are Africa, Latin America (largely Brazil, Mexico), Asia
Pacific (key markets being Malaysia), and CIS. While RLL’s current presence in these markets remain limited,
RLL has plans to scale up its presence.

Post acquisition by Daiichi Sankyo, a synergy office was created in India to identify the areas where the two
companies would leverage each other’s strengths. Thus, as a part of this, Daiichi Sankyo identified launch of few
of its products through RLL’s marketing and distribution network in select markets, which included India, Romania,
and six African markets. Additionally, RLL focused on consolidating its presence in few markets and exited its JVs
in certain markets like China, Vietnam and Japan. In line with its strategy to leverage Daiichi Sankyo’ brand equity
and marketing and distribution, RLL exited its existing JV in Japan. In line with its generic focus, RLL’s new drug
discovery R&D is also being hived off to Daiichi Sankyo, with RLL retaining the pipeline of research products.

In last two years (2008 and 2009) and H1 2010, RLL’s quarterly financial performance has displayed significant
volatility. While the deterioration in sales and operating profits began from Q4 2008 till Q22009 as the company
undertook some write offs and witnessed higher S, G& A expenses. However, there was substantial improvement
in operating profits from Q3 2009 onwards, especially in Q42009 and Q1 2010 largely driven by exclusivity period

2
RLL’s sales in US amounted to US$ 150 million in Q42009, US$250million in Q12010 and US$ 146 million in Q2 2010

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ICRA Credit Perspective Ranbaxy Laboratories Limited

enjoyed by Valacyclovir. Additionally in 2008, the company’s net profits were adversely impacted by notional
losses on forex borrowings as well as mark to market losses from large derivative transaction. However, with
rupee strengthening, the company reported notional gain on forex borrowings as well as MTM gains in 2009.
Despite volatility in operating performance, the company’s financial profile remained moderate (net gearing of
1.1x) with infusion of Rs. 3,585 crore by Daiichi Sankyo in 2008 strengthening company’s net worth. These funds
also allowed the company to repay part of its debt. Additionally, with some revival in performance in 2009 and
reduced debt levels, RLL’s capital structure has improved with net gearing of 0.9x, though coverage indicators
remain relatively moderate.

Company Profile
Ranbaxy Laboratories Limited is amongst the largest pharmaceutical company in India (in terms of revenues)
having ground operations in 46 countries through a web of affiliates, joint ventures and alliances. The company
has manufacturing operations in 7 countries. In 2009, RLL derived around 54% of revenues from emerging
markets, 39% from developed markets (North America and Europe) with the balance being accounted for by
others (7%). In 2008, Daiichi Sankyo Pharmaceutical Company Limited, Japan acquired majority stake (63.9%) in
the company by way of purchase of promoter stake of 34.8%, preferential issue and open offer.

Recent Results: The company reported consolidated revenues of Rs. 49.2 billion in H1 calendar 2010 and profit
after tax of Rs. 12.95 billion.

About Daiichi Sankyo: With revenues of Yen 952 billion in March 2010, Daiichi Sankyo is a global innovator
pharma company figuring among the top 20 pharmaceutical companies. Daiichi Sankyo has significant presence
in cardiovascular, anti-infectives segments globally. In FY2009, the company derived 49% of its revenues from
prescription drugs in Japan and 40% from overseas operations followed by 6% from OTC and balance from
others.

Business Risk Analysis

Integration of RLL with Daiichi Sankyo; Pursuing Hybrid business model-
Post acquisition of RLL, the RLL- Daiichi Sankyo Group announced the hybrid business model with Daiichi
Sankyo focusing on innovator products (largely developed markets) and RLL focusing on generics in both
developed as well as emerging markets. Thus, there have been synergies identified across geographies,
infrastructure, (for innovator and generic launches) besides the research and development initiatives. As a part of
integration process with Daiichi Sankyo, the management has revisited operations in some specific countries, to
consolidate and create value through further efficiencies and cost synergies. As a part of the Hybrid business
model, synergies have been announced in both front end and back end. Thus, RLL exited its JVs in China, Japan
and discontinued manufacturing operations in Vietnam. Subsequently, Daiichi Sankyo announced its foray in
Japanese generics market through its 100% subsidiary Daiichi Sankyo Espha. Going forward, RLL would
undertake product development and manufacturing while branding and distribution of generics in Japan would be
done leveraging brand equity and distribution infrastructure of Daiichi Sankyo.

In the past few quarters, Daiichi Sankyo has also launched its innovator products in key emerging markets that
include India and Romania leveraging marketing and distribution infrastructure of RLL. In the future RLL’s R&D
endeavours would be restricted to generic product development and the existing drug discovery research
business has been hived off to Daiichi Sankyo India Pharma Private Limited. This would result in annual US$ 20
million reduction in R&D budget for RLL.

In March 2010, Daiichi Sankyo unveiled its second mid-term business management plan (Fiscal 2010-12). The
mid-term plan envisages increase in contribution of RLL in Daiichi Sankyo’ sales revenues from 15.4% in FY10 to
24% in FY13 besides driving growth in Daiichi Sankyo’ innovator products leveraging on RLL’s marketing and
distribution strengths in emerging markets.

Increasing focus on emerging markets, while continuing to grow developed market generics business
Between 2005 and 2009, the share of emerging markets in the sales mix of RLL has increased from 44% to 54%.
While the company has been consciously increasing its presence in the emerging markets, both through organic
and inorganic route as evident from the share of emerging market in sales mix at 54% in 2007, the adverse
regulatory actions of USFDA impacted the sales of RLL in last two years.

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Chart 1: Trend in Geography wise sales of RLL

Source: Company Annual Reports and Presentations

In 2008, RLL’s sales in US and Europe taken together declined marginally, on account of pricing pressures (and
market specific factors) in Europe and ban on imports of 30 products in US (from September 2008). The emerging
markets, however, reported a 7% growth in 2008 offsetting the decline in sales in US and Europe. The European
market (RLL’s revenues of US$ 269 billion in 2009) continued to post decline in 2009 on account of change in
company’s strategy to focus on profitable business. In the US, the regulatory actions restricting the number of
products in US resulted in RLL’s sales in US declining by 15% in 2009 over previous year. The decline in US
sales was to an extent arrested in Q4 2009, subsequent to launch of exclusivity product (Valacyclovir in November
2009).

US sales recover from Q4 2009 onwards; Emerging markets grow in Q1 2010

As evident from table, RLL’s sales in calendar 2009 in dollar terms witnessed a sharp decline over the
corresponding previous led largely by decline in US and Europe sales. While US has been the single largest
market for the company in last few years, the adverse regulatory actions in 2008 resulted in decline in US
revenues in 2008 and 2009 with Q3 2009 witnessing the lowest level. However, in Q4 2009, RLL’s sales in US
reported a sharp growth led by strong growth in base business and significant contribution from launch of
valacyclovir (GSK’s Valtrex, sales of US$ 2.2 billion in 2008 in US) in November end during calendar 2009. By
virtue of RLL’s six month exclusivity on the product, RLL’s US revenues remained robust in Q1 2010 with the
benefit from exclusivity continuing partly in Q2 2010 also.

Table 1: Trend in Market-wise Sales

US$ million 2008 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010
India 299 293 66 81 74.7 68.9 65 98
Consumer 44 44 6 11 12 15.1 10
Healthcare India
Africa 130 125 26 35 36 28 39 39
US 393 334 68 62 44 158 251 146
Canada 55 63 13 17 16.9 17 13 14
Latam 74 71 11 17 21 21 19 19
CIS 111 86 17 15 23 31 24 20
Asia Pac 100 100 22 24 26 28 14 19
Europe 223 193 38 43 50 61 43 45
Romania 107 76 19 21 17 19 24
24
API and Others 130 112 27 42 35.4 35 41 26
Total 1667 1519 313 368 356 482 542 450
Source: Company Releases, Annual Report

In Europe, the company has presence in UK, France, Germany, Poland and Italy with the company having
significant presence in Romania. While sales de-growth in Romania was account of ongoing healthcare reforms in
the country; the company witnessed significant pricing pressures in other key European market and thus focused

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ICRA Credit Perspective Ranbaxy Laboratories Limited

on maintaining a profitable business rather than achieving sales growth. The restructuring efforts in Europe have
started paying off with the company reporting a healthy growth in revenues in H1 2010.

Among the emerging markets, India, Asia (excl India), Africa, CIS and Latin America are key markets. In India,
RLL’s primary focus remains branded formulations, with the company remaining figuring among the top three
players in domestic branded formulation market. RLL’s sales in Asia Pacific (excluding India) sales remained
stagnant in 2009 followed by a decline in H1 2010 partly on account of divestment of stake in subsidiaries in China
and Vietnam during 2009. However, RLL continues to have a marketing presence in these markets as they are
important pharma markets and expects turnover to improve in the medium term.

US Revenues adversely impacted by regulatory actions till Q3, 2009; growth rate in US revenues improve
from Q4 2009 led by growth in base business as well as benefits from exclusivity
As discussed earlier, RLL’s sales in US declined from Q3, 2008 on account of import ban on 30 products
(originating from Dewas and Poanta Sahib facilities) and subsequent AIP being invoked against Poanta Sahib
facility. The company’s US sales in 2008 and 2009 (till Oct 2009) were largely the base business (no exclusivity
revenues included). With the
implementation of this ban and AIP,
many of the key products of RLL
were impacted and the company
could not market these products post
ban on Poanta Sahib. Additionally,
this had some adverse impact on the
ANDA pipeline for the US, especially
the FTF/exclusivity products. From
September 2008 till June 2009, the
company had three key launches in
the US- Sumatriptan (100 mg
strength), Valacyclovir and
Tamsulosin. Of these, RLL missed
Sumatriptan on account of delay in
site transfer, however, it was able to
launch Valacyclovir on time and it
monetized Tamsulosin (unable to
secure FDA approval on time)
through settlement.

Source: Company Releases

The adverse regulatory actions had initially impacted RLL’s relations with distributors in the US. However, the
management’s strong execution capability and ability to launch exclusivity products strengthened the confidence
of distributors contributing to revival in base business in US. Additionally, the company’s branded generic portfolio
had shrunk post import ban. However, the company has plans to get into value added formulations going forward.

RLL continues to have a healthy pipeline of products, with the company’s cumulative ANDA filings at 204, of which
138 have been approved and 66 pending approval (addressing innovator sales of US$ 45 billion). Of the ANDAs
approval, RLL has FTF status (attached exclusivity period) on 12. The company’s ability to monetize this
exclusivity would depend on successfully undertaking a site transfer prior to the settled deadlines. Nevertheless,
the company expects base business of US$ 200 million per annum from US to be sustainable from now on.

After two years of revenue decline (in constant USD terms), Europe is the third largest market for RLL
In EU, RLL has a well established presence with presence in 23 of the 25 EU markets. In the past the company
has grown its presence in Europe through a mix of organic and inorganic growth initiatives. Some of the inorganic
growth initiatives included acquisition of marketing companies in France, Italy (Allen acquired in 2006), Spain
(GSK’s Generic business Mundogen acquired in 2006), Germany and Romania (Terapia, a significant acquisition).
In 2009, Romania, UK, France, Germany were the significant contributor to revenues for the company with
significant proportion of revenues derived from tender business in UK and Germany. In 2009, based on the
changing pricing environment, the company consciously rationalized its operations and exited the branded
formulation business in UK.

Currently, RLL’s subsidiary—Terapia is No. 1 generic and OTC player in Romania. The sales performance in
Romania during 2009 was impacted by new pricing regulations, multiple healthcare reforms in process and severe
liquidity crunch in trade channels. With reduced off-take by trade (changes in pricing regulations resulted in
reduced off-take from wholesalers), RLL closed down manufacturing facility and rationalised its manpower during
2009. However, RLL’s sales in Romania have reported a sharp growth in H1 2010 over the previous year.

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ICRA Credit Perspective Ranbaxy Laboratories Limited

BRICS region identified for growth

In the emerging markets, India remains the largest market for the company (US$293 million in 2009) followed by
Africa (US$125 million), and Asia Pacific (US$100 million). Although CIS and Latam are the other markets where
RLL is present, its presence in these markets remains limited.

Strong market position in India; project Viraat aimed at attaining leadership position: RLL figures among the top
three players in the domestic formulations market with a market share of 4.8%. The company has well established
brands with 18 brands figuring among the top 300 brands (Source: Company Annual Report) of the industry, a
strong marketing and distribution network with 2500 persons field force in 2009. RLL has been aggressively
launching new product with 42 new launches in 2009 followed by over 50 launches in H1 2010. Although RLL has
increasingly launched products in chronic segment, its product mix is skewed towards acute segments.
Nevertheless, the company is expanding its therapy areas in domestic market to add gynaecology,
ophthalmology, vaccines, CNS.

RLL has recently embarked upon Project Viraat for attaining leadership position in domestic market by increasing
penetration especially in the rural areas. Under this project, the company intends to expand its field force to 4,000
(from 2500 in 2009) for targeting rural and extra urban markets to increase its penetration in tier 2 cities and rural
areas leveraging its network and product distribution strengths.

Continues to explore growth opportunities to strengthen presence in Other Emerging markets: With around
US$100 million annual sales, CIS is an important market for the company. RLL had gone slow in expansion in
Russia because of liquidity issues in 2009, however, the company has witnessed healthy growth in H1 2010.
Nevertheless, there exists some uncertainty on account of introduction of reference pricing norms that may impact
performance in Russia going forward. RLL has long standing presence in key markets in Latin America i.e. Brazil
and Mexico and has plans to scale up its business. Africa is an important market for RLL wherein the company
has presence in 43/54 countries in Africa and strong brand equity, with significantly stronger presence in South
Africa and Nigeria. RLL ranks No. 2 in Nigeria and No.5 in S. Africa generics market with presence in both
branded and tender market. Additionally, RLL also has substantial OTC business in Africa. The company plans to
launch products from portfolio of Daiichi Sankyo in six African markets, for which the benefits are expected to
come from Calendar 2011.

Japanese Generics identified as a key driver for long term growth; significant thrust on product
development and investments in manufacturing infrastructure
RLL plans to foray in the Japanese Generics market in collaboration with Daiichi Sankyo’s 100% generic
subsidiary (Daiichi Sankyo Espha) in Japan. Although the opportunity in the short to medium term may not
contribute significantly to RLL’s revenues, the company expects sizeable revenues and profits to accrue in three
years time frame. RLL has already started undertaking filings and with the approval time of 26-28 months, the
company expects its initiatives to start giving results from 2012 onwards.

R&D focus continues on generics; new drug discovery being integrated with parent
RLL’s R&D efforts are directed at development of non infringing processes for bulk actives and formulations for
generics market of regulated countries, development of new drug delivery systems and new drug discovery
research. Thus, the company’s R&D budget has been growing with RLL spending around 6-7% of its revenues in
R&D annually.

Table 2: Trend in R&D Expenditure 2006 2007 2008 2009

R&D Expenses (Capital) 46.6 55.8
R&D Expenses (Revenue) 395.5 423.9 428 431.4
Revenue R&D/ OI 6.5% 6.3% 5.8% 5.7%
Source: Company Releases, Annual Report

While RLL had built a strong ANDA pipeline for US as well as filings in other markets till 2008, the adverse
regulatory action by USFDA has to some extent slowed down the approvals for filings undertaken by the company
in last two years, especially in developed markets. Nevertheless, the company has invested significant amount for
creating manufacturing infrastructure in India and US and has started product filings from such locations.

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ICRA Credit Perspective Ranbaxy Laboratories Limited

Financial Profile
Stagnant revenue growth, however, exclusivity revenues and favourable forex movement drive operating
profits in 2009; RoCE, though improving, remains weak
In 2009, RLL’s sales were affected by weaker sales performance during the first nine months when the company
witnessed significant decline in US revenues. However, this was partly offset by strong revenues from one off (180
day exclusivity for valacyclovir) as well as growth in emerging markets resulting in overall stagnant revenues for
RLL in 2009. While the company has been witnessing increased cost pressures related to site transfers, costs of
consultants for resolving FDA issues as well as restructuring costs, higher revenues from exclusivity product (FTF
sales in US), cost control initiatives across geographies, improved product mix and favourable forex movement
allowed the company report operating profits. As RLL exited some of its ventures in China, Japan and Vietnam,
the company booked some profits on sale of these investments in 2009 resulting in increase in non operating
income.

Table 3: Trend in Profitability Indicators

Rs. Crore Growth (%)

2006 2007 2008 2009 2007 2008 2009
Operating Income 6,127 6,774 7,412 7,594.6 10.6% 9.4% 2.5%
OPBDITA 889 791 655 811.8 -11.0% -17.3% 24.0%
OPBIT 698 528 372 543.4 -24.3% -29.6% 46.0%
Non Operating Income 58.2 621.7 242.2 207.7
Non Operating Expense -1.4 -10.4 -60.1 -141.0
PBT 651 999 349 539
Extraordinary Items -1,848 471
PAT 515 787 -935 311
NCA* 345 678 1,196 108
OPM 14.5% 11.7% 8.8% 10.7%
NPM 8.4% 11.6% -12.6% 4.1%
RoCE 14.9% 17.5% -14.7% 10.8%
*adjusted for FV loss on derivative transactions and loss on restatement of forex borrowings
Source: Company Annual Report, ICRA Estimates

Adverse forex movement negatively impacted RLL’s financial performance in 2008 and in H1 2009. However in
H2 2009, majority of forex losses due to dollar movement were reversed with strengthening of rupee, which
resulted in the company reporting gain on fair valuation of derivatives (Rs. 321.8 crore, included in exceptional
income). Additionally, the company also reported gain on restatement of forex borrowings (Rs. 149.3 crore in 2009
included in exceptional items).

In the short term, with the scaling up of field force (Project Viraat), there would be some increase in employee
costs. Additionally, if the company is able to resolve FDA issues soon, it would be able to get significant cost
savings.

Comfortable financial risk profile

Subsequent to Rs. 3,585 crore funds3 infused by Daiichi Sankyo, RLL had paid off some of its loans in 2008.
Additionally, with this equity and warrants issue, the net worth of the company strengthened resulting in
improvement in capital structure in 2008. Strong accruals in 2009 resulted in improvement in net gearing to 0.9x in
2009 from 1.1x in 2008.

3
In October 2008, RLL had issued 4.63 lakh shares to Daiichi Sankyo on preferential basis at Rs. 737 per share aggregating to
Rs.3409 crore and 2.38 crore warrants at Rs. 737 per share with 10% amount paid upfront (Rs. 175.7 crore). These warrants could be
excercised between 6-18 months of date of allotment.

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ICRA Credit Perspective Ranbaxy Laboratories Limited

Table 4: Trend in Capitalisation and Leverage Indicators

Rs. Crore 2006 2007 2008 2009

4
Total Debt 3955.6 4141.7 6987.5 5296.5
Total Debt (excluding payables on 3675.0 4141.7 4311.4 3629.5
unrealized loss of currency option)
TNW 2566.9 2784.7 4277.7 4336.3
Gearing 1.5 1.5 1.6 1.2
Cash 295.1 437.9 2395.6 1241.6
Net Gearing 1.4 1.3 1.1 0.9
Adjusted NCA/Total debt 9% 16% 6% 5%
Interest Cover 8.6 5.6 3.2 11.4
Debt/OPBITDA 4.4 5.2 10.7 6.5
Net Debt/ OPBITDA 4.1 4.7 7.0 5.0
Source: Company Annual Report, ICRA Estimates

Marginal increase in Working Capital intensity despite sharp rise in debtor levels
RLL’s debtors increased sharply in 2009 largely on account of higher level of shipments of its exclusivity product
Valacyclovir at the year end. Nevertheless, the company’s payables also increased in 2009 largely related to its
raw material suppliers.

Table 5: Trend in Working Capital Intensity

2006 2007 2008 2009
NWC/OI 39% 33% 30% 37%
Debtors Days 95 81 67 91
Creditors Days 81 76 86 112
Inventory Days 161 145 157 140
Source: Company Annual Report, ICRA Estimates

4
Total Debt includes the current liability amounting to Rs. 1667 crore relating to payables towards unrealized loss on currency options.

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ICRA Credit Perspective Ranbaxy Laboratories Limited

Annexure
Rating History

Amount Maturity
Rating Outstanding Previous Ratings
Outstanding Date
July 2010 July 2008 June 2008
Rs. 600 crore short term
A1+ A1+ A1+
bank facilities*
Rs. 700 crore CP/ STD
A1+ A1+
programme
*In June 2008, the total bank facilities rated amounted to Rs. 1.3 billion, which were subsequently reduced to Rs.
6 billion in July 2008.

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ICRA Credit Perspective Ranbaxy Laboratories Limited

ICRA Limited
An Associate of Moody's Investors Service

CORPORATE OFFICE
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