Ranbaxy's gamble: Dalal Street may like the company a lot less if its generics-driven strategy fails to pay off
6 RANK	MVA: 9,711 EVA: -94 MVA and EVA in Rs crore

On march 20, 2003, as Ranbaxy announced the receipt of fda approval for the launch of generic Augmentin dry syrup, one man who should have the most reason to cheer it, was missing at the Delhi headquarters. But cheering D.S. Brar was-at Kingsmead, Durban, as India scored an easy victory over Kenya. On a hard-won fortnight's vacation, the Ranbaxy CEO would stay on in South Africa for India's final clash with the Aussies, before returning at end of the month via the US.

One way or another, Augmentin will likely be on Brar's agenda for some time to come. Like Cefuroxime Axetil-Ranbaxy's turnaround generic drug launched in March 2002-Augmentin is another generic drug that is expected to accelerate Ranbaxy's global revenues. In fact, with 55 Approved New Drug Applications (ANDAs), the Rs 2,880-crore Ranbaxy is the only Indian pharma company with a full generics pipeline (See Banking On Generics). (Now you know why despite a negative EVA of Rs 94 crore, it has an MVA of Rs 9,711 crore).

But Brar may have a problem at hand. Ranbaxy launched its tablet version of Augmentin around the middle of January this year, but the response so far has been weaker than expected. Reason: three big generic companies in the US-Geneva Pharma, Teva Pharmaceutical Industries and Lek Pharma-have flooded the market with their own generic versions, and these must move off the shelves before Ranbaxy's Augmentin gets any space on them.

That, and the continuing losses in Ranbaxy's overseas subsidiaries, is beginning to worry some analysts. For example, while Ranbaxy's net profits jumped 323 per cent in 2002 fourth quarter (October-December) to Rs 212.70 crore, its consolidated earnings were lower by Rs 17 crore. The result: Ranbaxy's stock has slipped-from Rs 640 in the middle of January this year to about Rs 617 on March 21. Says Ashit Kothari, Analyst, ask Raymond James: "We feel that the company is too dependent on Cefuroxime Axetil, and that profit margins would be under pressure if one excludes the profits from Cefuroxime."

D.S. Brar, CEO, Ranbaxy: Bleeding overseas subsidiaries are a worry

For Brar, who was not available for comment, that's something to worry about. Over the last year, investors have bumped up the company's stock from Rs 450-adding Rs 3,200 crore in MVA-in the hope that Ranbaxy's global gambit will pay off. If the generics end up missing targets, Brar may have some explaining to do to Dalal Street. Fortunately for him, though, he has believers. Even in the case of Augmentin, there are analysts who believe that its marketshare should pick up in the coming months and that by the end of the year, it will meet its revenue target between $30 million and $50 million. Says Shahina Mukadam, Analyst, Motilal Oswal Securities: "While it may be disappointing not to (have) marketshare spurting right from the start, it does not change my view on the capability of Ranbaxy to meet my CY03 estimate of $40 million from Augmentin."

Analysts like Mukadam also expect Dr Reddy's to expand its product portfolio over the next two to three years. But that's unlikely to displace Ranbaxy from investors' pecking list. But the challenge for Brar is to turn his subsidiaries profitable and hit generics sales targets, which will also help the company turn its EVA positive. Sooner than later, that will be critical to Ranbaxy staying among the top wealth creators.