Although sales turnover increased by a decent 15 per cent to Rs 424 crore, the huge fall in the other operating income to Rs 8 crore restricted the growth of the total income to 10 per cent. The total income stood at Rs 434 crore up from Rs 395 crore in Q2.

The company's export sales grew by 13 per cent to Rs 192 crore while domestic sales was up by 16 per cent to Rs 232 crore. The growth recorded by Ranbaxy is in line with industry performance but lower than the expected growth rate of 20-25 per cent. With the recognition of product patents as per WTO norms, it has become imperative for all Indian pharmaceutical companies to focus on R&D since new products developed would only be the growth drivers in the future. Ranbaxy spends around 3.5 per cent of its turnover on R&D and has reaped rich dividends from it.

The company has plans to launch 25-30 products in the branded formulation market in India which is growing at a healthy rate and has a promising future. It is also focussing on the export markets which has a huge potential for generic products.

The future seems to be very bright for Ranbaxy. Milestone payments from Bayer AG will boost the bottomline of the company for the next quarter. The company is expected to receive $5 million for licensing its anti-infective drug Ciprofloxacin. It would also receive another $10 million once the USFDA approves the Abbreviated New Drug Application (ANDA), which is expected by January 2001.

Furthering its R&D reach, it has plans to jump into the human genome project and has already started negotiations with the Department of Biotechnology for a possible alliance. The company has a successful record in developing new products through R&D out of which a few are entering phase II and III trials.

The operating margin of the company received a set back as the rise in the operating expenditure was higher than the rise in sales. The operating profit came down by 9 per cent from Rs 79 crore to Rs 72 crore. A fall in the interest cost by 78 per cent to Rs 2 crore has helped the bottomline from falling down significantly. The bottomline was down by 5.4 per cent from 47 crore to Rs 42 crore. Ranbaxy is on the growth path and its future depends on the results of its R&D efforts.

Rallis India
Fortunes of all the fertiliser and pesticides companies are dependent on monsoon and government. It is difficult to determine which one is more influential, former or the latter. Whatever may be the answer, the truth remains that there are no takers for the stocks belonging to the sector. One such stock is of Rallis India.

The company's performance for the quarter ended June 2000 is a replica of the group company Tata Chemicals' performance. It has slipped into the red with a fall in turnover and operating profit margin (OPM). The topline has fallen by 22.78 per cent to Rs 221.57 crore. The reason for this was low sales volumes. This, in turn, is attributed by the company to the steep increases in government duties and taxes. There was a steep increase in excise duty on pesticides from 8 per cent to 16 per cent along with sales tax increases in some states.

The delay in sowings due to the late monsoon has also not helped the company's cause. To add to the company's woes, the government reduced the retention price of fertiliser (urea) in the last week of May `2000 by Rs 463 a tonne with a retrospective effect from the start of the current financial year. This is a big blow as the fertiliser accounts for roughly 50 per cent of the total sales. Though the pharmaceutical business performed well, it hardly matters as it is around 1 per cent of the topline. The total expenditure could be controlled only to the extent of 19.69 per cent, resulting in erosion in OPM. It came down to 1.60 per cent from 5.21 per cent recorded in the corresponding period of the previous year. The outcome of operations could remain positive with Rs 3.54 crore profit.

The company was further handicapped by delayed recovery of fertiliser subsidies from the government of India. This resulted into inflated finance cost of Rs 15.61 crore, 40 per cent more than the corresponding figure. Due to this, the end result was loss of Rs 15.06 crore as against the profit of Rs 1.02 crore.

The pesticides and chemicals business contribute 35 per cent of the sales. There is a hope for these businesses to grow in the second quarter. The optimism is based on the forecasted late onset of monsoon in several parts of the country. Despite that, the overall outlook for the rest of the year looks bleak. This can be said in the wake of huge reduction in the urea price effected by the Government. The stock is already looking down the barrel with the price hitting 52 week low of Rs 65. Investors would do well to get out of the counter.

KSESH (with contribution from Prashant Kothari and Manish Joshi)