Executive Summary

“BUY” Key Investment Arguments

CMP (Rs.) 360 Approval For Patents from USFDA
Target(Rs.) 479  Pravastarin Sodium 80 mg in Canada for
Stock return 33% whose market is CAD 729 mn and in USA
having market of $209mn annually.
 Atorvastin drug in Norway
 Bioequivalent having market of $2.79bn.
Tentative approvals for,
Nifty 4512.15  Fexofenadine hydrochloride tablets whose
Sensex 15311.22 annual market is of $931 mn.
 Tamsulosin HCl capsules having market of
$1.1bn.
 Amlodipine besylate tablets 2.5 mg, 5 mg,
Key Stock Data 10 mg base.
BSE id 500359
NSE id Ranbaxy Mergers and Acquisitions
Ranbaxy has undergone nine mergers and
No of Shares 375
acquisitions last year in different countries like
(in mn) Terapia in Romania(South Africa), Ethimed in
Belgium, Allen in Italy, Be-Tabs Pharmaceuticals in
Market Cap 13416 South Africa which is valued Rs 500 mn and it
(Rs mn) 7 makes Ranbaxy fifth largest generic, Mundogen in
Spain, Zenotech laboratories, Biochemicals &
Avg 6 mnt 736.69 Industries and Cardinal Drugs in India. It acquired
vol(in mn) Senetek PLC proprietary technology to gain
access to niche technology, disposable
autoinjector technology which is for self-
Stock Performance administration of parenteral drugs used in
emergency treatment of for anaphylactic shocks.
52 Drug Discovery & Clinical Development with
Intraday
Week GlaxoSmithKline is its important collaboration.
Cipro OD Technology is Out Licensed to Bayer and
Highs 356.40 445.00 Statin to PPD, USA.
Lows 344.60 305.50
Expanded its presence in Dermatology
Share Holding Pattern Its wholly owned subsidiary Ranbaxy Laboratories
Foreign Holding 21.86% Inc. acquired from Bristol- Myers. It used it for
making drugs used in treatment of Aene,
Govt./Financial 20.18% Dermatitis, Psoriasis, Fungal infection and Seabies.
Institutions It is estimated at $ 10 bn. and has experienced
Corporate 2.16% growth of 10% annually.
(excluding
above institutes) Valuation Looks Positive
It is expected that Ranbaxy will post a CAGR
of 17% in Revenues between FY07-11 and
Directors and 34.86%
16% in earnings for the same period. At the
their relatives CMP of Rs 360, the stock trades at PER of
Free Floating 20.95% 38.39 which is 24.81x and 22.36 FY08 and
FY09 respectively.
The target price
achieved by DCF
is Rs 475.SO it
is suggested to
“BUY”
 Index
Chapter 1 Introduction

1.1 About the work place

1.2 Objectives
1.3 Operating Methods
1.4 Fundamental Analysis
1.5 Technical Analysis

Chapter 2 Economic Effect

2.1. Rise in Investment
2.2. Money Supply and Inflation
2.3. Positive Industry Sector Growth
2.4. Corporate Profits
2.5. Interest Rates
2.6. Effect of Current Budget

Chapter 3 Sector Details

3.1. Overview
3.2. Structure
3.3. Regulatory Framework
3.4. Major Segments
3.4.1. Bulk Drugs
3.4.2. Formulations
3.5. Current Issues

Chapter 4 About Ranbaxy

4.1. Selection Criteria

4.2. SWOT Analysis

4.2.1. Strengths
4.2.2. Weakness
4.2.3. Opportunities
4.2.4. Threats

4.3. Research Considerations

 4.4. Risk Involved

4.4.1. Investment Risk

4.4.2. Business Risk
4.4.3. Financial Risk

4.5. Peer Comparison

4.6. About the Company

4.7. Ranbaxy in India

4.8. Global Presence

4.8.1. North America
4.8.2. USA
4.8.3. India
4.8.4. UK
4.8.5. France
4.8.6. Germany
4.8.7. Italy
4.8.8. Spain
4.8.9. Poland
4.8.10. Romania
4.8.11. Russia (including Ukraine)
4.8.12. Japan
4.8.13. Africa
4.8.14. Latin America

4.9. Therapy Focus

4.9.1. Anti- infective
4.9.2. Cardiovascular
4.9.3. Respiratory
4.9.4. Central Nervous System
4.9.5. Gastrointestinals
4.9.6. Musculoskeletal
4.9.7. Anti- retrovirals
4.9.8. Others

4.10. New Drug Discovery Research

4.10.1. Novel Drug Delivery System
4.10.2. Pharmaceutical Research
4.10.3. Chemical and Fermentation Research
4.10.4. Herbal Drug Research
4.10.5. Different Dosage Form
Chapter 5 Growth Arguments

5.1. Patent Approvals

5.2. Excellent Growth in first Quarter
5.3. Mergers and Acquisitions
5.4. Wider Opportunities

Chapter 6 Financial Evaluation

6.1. Balance Sheet

6.2. Profit and Loss Account
6.3. Percentage change year to year of Profit and Loss Account
6.4. Discounted Cash Flow Statement
6.5. Target Price Derivation
6.6. Charts
6.7. Ratios

Chapter 7 Technical Evaluation

Conclusion

Recommendations

Limitations
1. Introduction
In developing country like India people used to believe in secured and risk free
investment pattern but now the trend is changing and new investment options are
emerging in our economy. Now people are investing directly in stocks for higher returns.
But direct investment is very risky. It is important to know whether the company is
expected to grow or not. It can be known by fundamental and Technical Analysis of the
company. If the revenues, profit and future market prices are expected to grow it is a
worth company to purchase. These ways are justifications for investing or not investing
in a company.

1.1 About the Work Place

I under took my training at Dhanvarsha Fincap Pvt. Ltd. in Ahmedabad. It is a

share broking firm promoted by Mr. Nilesh Kotak. The company is engaged in
business of trading, mutual funds advices, portfolio management and equity
research. Mr. Nilesh Kotak is in the field since longer period of time and has
excelled in his field. Presently he is advisor on Investment and gives advices
on media via CNN channel. He is also regular column writer for the articles
guiding for investment in Shares and Future and Options. His articles are
mainly published in Gujarat Samachar, BlueChips and many other reputed
Newspapers. It has a strong customer base of more than two thousand and is
operating on BSE and NSE. Mr Bankim Thakkar who helps Mr. Nilesh Kotak
and has his proprietary firm named Vaishali Securities is equally
knowledgeable and he also writes articles on the same.

In trading equity research plays important role as it is important

to know whether the script in which the customers are investing is really
worth and whether their will be benefited or not. They include both
Fundamental and Technical analysis for the prediction.

Along with trading, due to increasing demand of investment in Mutual

Fund they are also concentrating on this market and leading toward the
Portfolio Management of their customers for providing them with higher
returns by applying their knowledge and as timely availability of customer’s
money on their requirement basis.
1.2 Objectives
 To learn how to do Equity Research.
 Doing analysis of the company on the basis of secondary data.
 To analyze and study the risk associated with every investment like Business
Risk, Financial Risk and Market Risk.
 Projecting their future on the basis of financial data and determining the
reasons for their good or bad performance in the market and also to estimate
its future market value.
1.3 Operating Method

Below given steps are followed in their chronological order:

 Selection of Economy for investment

 Selection of Sector
 Selection of Company
 Collecting historical data
 Estimation of forthcoming years

Data required for Study

 Company details
 Financial data
 Director’s and Auditor’s report
 Current news about the company and sector

Scope of Work
 Study was done on the basis of data available on net.
 Visit of the company was not feasible
 Newspapers, magazines and stock market scenario were also taken into
consideration

Study based on literature

From available books, internet, newspapers.
 Basic Concepts
 Analysis Method
 Ratios
1.4. Fundamental Analysis

Fundamental analysis is seeking the reason for the price

change or for its prediction. It is a logical method. Fundamental Analysis uses the
financial statements of the company to investigate the value of the company with regard
to its potential growth in earnings. It starts with abroad analysis of the economy:
economy growth, inflation, unemployment, money supply and the level and direction of
interest rates.

By considering the indicators that affect the economy,

financial analysts can then forecast future levels of GDP. These forecasts are used as a
basis for projecting the future sales and earnings of the companies within these
industries. Fundamentalists then select the common stock with favorable sectors of the
economy. This method of forecasting is called top- down approach. The other approach
financial analyst use is the bottom- top approach, which starts with sales and earnings
projections for companies in different sectors of the economy in which they are. The
analyst look for certain characteristics of the companies as basis for selection as low
sales- to –price- earning ratio, low p/e ratio, or small or mid cap stocks.

The procedure to do fundamental analysis is first select the

country or economy for investment. Then select the sector on the basis of certain factors
like most upcoming, current market scenario, future potential, government support,
demand, past performance, etc. Then select the company on the basis as told above. In
bottom-up technique sales is forecasted on the basis of current new, past of the
company, certain triggers which can affect its sales or profit margin. Then other
calculations are done on the sales basis or are budgeted and net profit is arrived. Finally
the discounted cash flow statement is made to arrive at target price. Finally the ratios
are calculated which tell about valuation of the company like ROE,EPS,P/E,etc.
1.5. Technical Analysis

Technical analysis is not at all concerned about the

fundamental factors of the company and the economic environment. Instead, it focuses
on the company’s historical stock price movements and the trading volume of the stock.
From the information technical analyst will predict future stock price of the stock. The
technician focuses on shorter time horizon then fundamental analyst.

Most large broking firms rely on technical analysis for their

selection of the stock. As doing fundamental analysis of each and every firm would be
difficult and tedious as it is time consuming and complex brokers rely mostly on
technical details as they are easy to get and understand as compared to fundamental
analysis.

The methods used for technical analysis are Line charts, Bar
charts, Point and Figure charts, Candle stick charts. The Market indicators are Dow
theory which focuses on primary, secondary and tertiary price movements. Volume and
new Highs and Lows are also used for indications.

In the trend method daily moving average, 200 day average

and 52 weeks high- low. 52 week high is considered resistance and 52 week low is
considered support. If the company moves below support it is dangerous and if above
resistance level means moving towards new highs.
2.1 Rise in investment

Gross domestic capital formation grows 33.8% in 2005-06

A notable feature of the current growth phase is the sharp rise in the rate of investment
in the economy. Investment, in general being a forward looking variable, reflects a high
degree of business optimism.

2.2 Money supply and Inflation

Money supply is increasing due to FII and FDI which is good for the economy and stock
market. Due to increased money supply inflation increases. Starting with a rate of
3.98%, the inflation rate in 2006-07 has been on a general upward trend with
intermittent decreases. However, average inflation in the 52 weeks ending on February
3, 2007 remained at 5% which is not good for stock market as it erodes P/E ratio but
government is taking dew steps to decrease it or at least to stop its growth.

2.3 Positive Industry sector growth

Manufacturing growing double digit since March 2006 every month, except October

The advance estimates of gross domestic product for 2006-07, released by the Central
Statistical Organization places the growth of GDP in the current year at 9.2%. The
ratcheting up of growth observed in recent years is reflected in the Eleventh Five Year
Plan target of an average annual growth of 9% relative to 8% targeted by the Tenth Plan.
Higher GDP has positive effect on stock market.

2.4 Corporate profits

According to the present scenario corporate profits are increasing which results in higher
stock prices.

2.5 Interest rates

Government is keeping watch on interest rates to keep them in control. Recently ICICI
has decreased its rates by 0.5% which is in favor of stock market.

2.6 Effect of Current Budget:

Budget is having positive effect by and large.

Key Positive Changes and their impact

1. Agreeing to industry's longstanding demand, weighted deduction of 150% for pharma
and biotech research and development expenses has been extended by five years to
March 31st, 2012 this will encourage pharma companies to invest more into research.
The major beneficiaries will be those companies for which R&D is of greater
importance like Ranbaxy Lab, Dr. Reddy's Lab, Sun Pharma, Glenmark Pharma, Lupin,
wockhardt and Cadila Healthcare.

2. Clinical trials for new molecules have been exempted from service tax.
This could lead more global pharma companies to outsource clinical
research to India.

3. Import duty on general medical equipment has been reduced to 7.5%, from 12.5%.
This may lead to a sizeable decline in price.

4. The Government will spend Rs 1290 crore towards a nation wide immunization
program. Companies like Panacea Biotec, Wockhardt and Aventis are likely to benefit
from the immunization program.

5. A provision fund of Rs 969 crore dedicated to HIV eradication in India will be created.
The companies who are trying to develop drugs for cure or prevention of HIV like Cipla,
Hetero Drugs and Ranbaxy Lab are likely to benefit from it.

6. Peak custom duty on chemicals has been reduced from 12.5% to 7.5% which would
benefit Active Pharmaceutical Ingredients (APIs) manufacturing companies.
3 Pharmaceutical Sector
Growth in this sector has been 16.4 % from FY71 to FY00.Its size has increased from Rs 4
billion to Rs 197.4 billion
MNCs viewing India as a base for outsourcing production of bulk drugs and finished
dosages as it is 20 to 25 percent cheaper sourcing drugs from India.

3.1. Overview
India’s healthcare spending is roughly 6 percent of GDP of which almost three fourth is
spent from private resources. By comparison the healthcare spending in the USA is
about 11 percent of GDP, majority of which is from government or third party (insurance)
funds. The expenditure on medicines is roughly 16 percent of all healthcare spending. It
is important to keep in mind that there are several systems of medicine in use both
traditional and modern. In this note we cover the modern sector which largely consists of
allopathic prescription drugs and formulations.

3.2. Structure
The pharma industry in India is highly fragmented both in terms of number of
manufacturers, with over 23,000 licensed units as well as the variety of products. Out of
these 23,000, there are about 250 large units and more than 8,000 small and medium scale
units which form the core of the industry.The industry has a wide range of over 100,000
drugs (which includes vitamins, anti-biotics, antibacterials, cardio-vascular drugs etc.) and
nearly 80 percent of the manufacturers have sales less than INR 1 billion.

3.3. The Regulatory Framework

With the objective of controlling prices of important drugs and making them available at
reasonable rates to the consumer, the Government introduced the Drug Price Control Order
(DPCO) in 1970. It specifies the maximum selling price of bulk drugs and formulations and
the turnover ceiling for exemption from the DPCO. The number of drugs under price control
has reduced. Indian Patent Act (1970), unlike the international norms, this Act provided for
process patents. But it is going to change as India being a member to the World Trade
Organization (WTO) is bound to introduce the patent regime and provide legal protection to
Trade Related Intellectual Property Rights (TRIPS) by January 1st, 2005.
So USFDA norms of Product patent are more important now.

3.4. Major Segments

Bulk Drugs which are the active ingredients with medicinal properties and are the basic raw
materials for making formulations and Formulations which are specific dosage forms of a
bulk drug or of a combination of different bulk drugs and the final form in which the drugs
are sold i.e. syrups, injections, tablets and capsules.

3.4.1. Bulk Drugs

The field of bulk drugs is broad-based. It covers all products and preparations used in the
production of pharmaceutical formulations. In terms of the inputs used in production of
drugs the industry faces low cost of inputs (in India) at competitive rates helped by the
presence of a well developed chemical industry.

3.4.2. Formulations
The size of the domestic formulations market is around Rs 130 billion and it is growing at
10% per annum. Bulk drugs are formed as India is largely self sufficient in case of
formulations. Some life saving, new generation under-patent formulations continue to be
imported, especially by MNCs, which then market them in India To access the generic
(off-patent) formulation market of developed countries, Indian companies will need tie-
ups with international majors. They have gone in for manufacturing of bulk drugs
required as inputs for their formulations.

3.5. Current Issues

Globally, the pharmaceutical industry is witnessing a number of trends including

increasing emphasis on consolidation, resulting in mergers and alliances, a conscious
shift towards generics (off-patent drugs) and emergence of niche players focusing on
specific areas of the pharmaceutical industry. The reasons for such alliances are many—
increase in geographical coverage, better utilization of sales force, access to new
products and brands, and sharing of resources. Moreover the large Indian companies are
getting their products and production facilities certified by international regulatory
authorities like the US-FDA and the UK-MCA. In the domestic market, companies are
focusing on strengthening the distribution system. Because of the largely generic nature
of the Indian pharmaceutical industry, the focus of domestic companies continues to be
on off-patent drugs. The MNCs are likely to bring in newer drugs into the market as the
new patent laws are implemented. Some of the companies are moving towards over-the-
counter (OTC) segments where margins are better and products are largely outside
DPCO.
4.1 Selection Criteria
Considering the highest sales Ranbaxy Laboratories has been selected
for analysis and has been the company to be benefited due to budget
because of weighted deduction of 150% for pharma and biotech research and
development expenses has been extended by five years to March 31st, 2012, decrease
in import duty and provision of fund for eradication of HIV and AIDS in which Ranbaxy is
involved.

4.2 SWOT Analysis

4.2.1. Strengths
 Dominant player in pharmaceutical sector.

 Geographic diversification reduces risk of slowdown in a particular content. In

FY06 out of total revenue 21% from India, 31.3% from North America, 32.3%
from Europe(with Russia and Ukraine) & 15.4% from rest of the world. Sale
during the year 2006 was US $1.3 bn (Rs 6000 crore) and Profit of US $ 114
mn(Rs 500 crore)

 Has undergone nine mergers and acquisitions of US$450 mn.

 It expanded its presence in Rome & South Africa

 Undergoes continuous Research & Development & develops new products

 A robust product flow into our key markets and lowered R&D costs by 20% over
last year

 Working towards new alliances with big pharma companies to expand and
leverage their New Drug Discovery Research (NDDR) program. To this effect, they
entered into a new multiyear R&D agreement with GSK, which provides Ranbaxy
expanded drug-development responsibilities and the prospects of significant
financial returns, in terms of milestones and royalties, going forward

 Leadership in Novel Drug Delivery System (NDDS) products, which offer value-
added differentiation over conventional products. Key brands include Cifran OD
(Ciprofloxacin), Zanocin OD (Ofloxacin) & Sporidex AF (Cephalexin)

 Strong brand building capabilities, reflected in the fact that 20 brands feature in
the “Top-300 brands of the Industry” list. The leading 5 brands are Sporidex
(Cephalexin), Cifran (Ciprofloxacin), Mox (Amoxycillin), Zanocin (Ofloxacin) &
Volini (Diclofenac)
4.2.2. Weakness

 Has to incur high costs in training the employees as the development of products
is very technical.

 It has done many mergers and acquisitions so it would be a challenge for them to
adjust in different country.

 As its main field is research and development the success and other predictions
becomes very difficult.

4.2.3. Opportunities

 Moving towards well balanced mix from developed and emerging market and will
be well positioned to maximize and leverage their varied growth potential .In 2006
from Developed market 42.3% Emerging
 49.1%and others 8.6%

 A number of special projects in high potential segments and therapies are

underway and are expected to be the key growth driver in future.

 The oncology therapy crossed the sales of US $ 30 bn in world sales is expected to

become dominant sector in pharmaceutical market. By 2010.Ranbaxy has recently
initiated itself into the segment by partnership with Zenotech in India and is
actively pursuing its plan for product filing.

 Throgh this they are also commited to another high growth segment of Bio-
Generics.

 The biotech market stands at US $ 50-60 bn and is expected to cross US $ 100 bn

by 2010.

 They are ready to launch their specialty injections like Penum, Limusis ,etc in the
market with the potential sales of US $ 3 bn.

4.2.4. Threats

 Going forward the environment would become more complex an d therefore

recruiting ,retaining and nurturing would become even more challenging.

 It has a threat of decreasing margins and tougher competition in European market.

  Changing policies and norms may be a problem for the company or market as a
whole.

 The global generics business is becoming more competitive with the entry of newer
players from the emerging economies. On the other hand, the government induced
changes in select markets and the ongoing consolidation in the industry is bringing
forth new challenges in the marketplace

 The generic segment has inherent risks of patent litigations, product liability, increasing
regulations and compliance related issues, particularly in the developed markets

4.3. Research considerations

 As a part of their social responsibility they are engaged in developing HIV/AIDS

new generation drugs and have developed and file the first step of medicine for
pediatric use.
 Their anti malarial drug development is also doing well in phase II clinical trials.

 They are also involved in research of Generic (off patent) drugs.

 Biological formulations such as Verorab (Rabies Vaccine) and Vaxigrip (Flu

Vaccine), which require competencies to propagate the newer concepts in the
market place. These products are being in-licensed or taken on Co-promotion from
Sanofi Pastuer.

 Dry Power & Metered Dose Inhalers have been launched in the Respiratory
segment. All Metered Dose Inhalers are HFA based formulations, environment
friendly inhalers. It is for the first time in India, that a company has launched its
entire HFA propellant based MDI range. The world’s first novel product,
Osovair (Formoterol + Ciclesonide) inhalation capsules has been introduced in the
Indian market.
 Anti-diabetic franchise has been further consolidated with launch of
Insucare (Insulin) with an innovative delivery mechanism - “Controlled Insulin
Logistics” This ensures that the cold chain, vital for product efficacy, is maintained

4.4. Risk Involved

4.4.1 Investment Risk

All companies face some kind of risk regardless of their size and industry. The
companies always face variation in general economic activities.

4.4.2 Business Risk

 Ranbaxy faces business risk such as failure of any product in R&D, not getting
approval from USFDA, etc.

4.4.3 Financial Risk

Larger portion of Ranbaxy’s market is in Europe and USA (63.6 %) where

Company Name Equity Rs.Cr. B.V. Sales NP NP Var% Div% CPS EPS
Rs. Rs.Cr. Rs.Cr. Rs. Rs.
(for previous year)
Cipla 155.45 41.70 3,572.14 660.82 7.00 - 9.80 8.50
Dr Reddy's Labs. 83.96 260.40 3,957.56 1,176.86 533.00 75.00 78.00 70.10
Nicholas Piramal 41.80 48.70 1,604.24 190.15 16.00 175.00 12.00 8.50
Ranbaxy Labs. 186.43 63.00 4,117.22 378.88 119.00 170.00 11.40 9.00
Wockhardt 54.72 87.40 1,120.48 257.52 8.00 100.00 26.00 22.80
Sun pharma. 98.04 134.80 2,243.18 628.93 39.00 135.00 34.40 32.10
competition is very tough and profit margins are also declining.

4.5. Peer Comparison of top companies in this sector

Sector: Pharma India Bulk Drugs and Formulation
Company Volume 52 Week 52 Price BSE Price NSEMkt.Cap. P/C P/E Price Sales NP NP Var
Name High Week Rs.Cr. Ratio Ratio Vs. Rs.Cr. Rs.Cr. %
Low BV (for last
quarter)
Cipla 780.38 275.00 203.00 206.00 204.00 16011.35 20.90 24.20 4.94 938.47 125.73 -34.00
Dr 284.42 840.00 599.00 650.00 650.00 10916.48 8.30 9.30 2.50 1,104.75 268.90 -
Reddy's
Labs.
Nicholas 226.34 314.00 177.00 295.00 295.00 6167.59 24.70 34.70 6.06 386.56 26.92 -32.00
Piramal
Ranbaxy 763.69 445.00 306.00 356.00 356.00 13275.68 31.10 39.60 5.65 988.17 108.46 116.00
Labs.
Wockhard 22.60 450.00 324.00 392.00 394.00 4292.78 15.10 17.20 4.49 292.70 52.00 -15.00
t
Sun 214.53 1,196.00 705.00 1,041.00 1,043.00 20410.95 30.20 32.40 7.72 588.51 155.67 34.00
Pharma.
4.6. About the Company

The Company was incorporated on 16th June, 1961 at Delhi. The Company
Manufacture drugs, medicines, cosmetics and chemical products. The company
also markets a wide range of products including a number of life saving antibiotics.
It is mainly involved in Research and Development to develop new drugs for
eradication, cure or treatment of the diseases. Ranbaxy is one of the leading
pharma Companies in India commanding a market share of 5.07%. The Company
has clocked sales of USD 286 Mn (2006) registering a growth of over 17%.

At nearly double the market growth, Ranbaxy became the fastest-growing

company amongst the top 10 players.
The Company manufactures and markets over 150 products and launched 10
new products during the year. We doubled our field force after the integration,
thus becoming the No. 1 company in terms of field force, calling on more than
3,700 physicians every day.
'Terapia Ranbaxy' employs a proprietary distribution company, making more
than 400 deliveries per day, serving a pool of 5000 retail pharmacies and 400
hospitals.

4.7. Ranbaxy in India:

Team Size About 2,500 persons

Overall Market Size
Ranbaxy Market Share
Ranbaxy Sales
Total No. of Molecules
Ranbaxy + Local tie ups
Lead Molecules
Presence in Therapeutic
Segments
US $ 6.2 Bn
5.07%
US $ 260 Mn
Market formulations based on more than 200 molecules
(including Fixed Dose Combinations)
Cephalexin (Sporidex), Ciprofloxacin (Cifran), Amoxycillin
(Mox), Ofloxacin (Zanocin), Atorvastatin (Storvas),
Ceftriaxone (Oframax), Cefpodoxime (Cepodem), Co-
amoxyclav (Moxclav), Cilanem (Imipenem+Cilastatin),
Volini (Diclofenac combination), Silverex (Silver
Sulphadizine), Cepodem (Cefpodoxime), Verorab (Rabies
vaccine)
Anti-Infectives, Cardiovascular & Diabetes,
Dermatological, Neuro-Psychiatry, Pain management,
Gastro-Intestinal, Nutritional
4.8. Global Presence

4.8.1. North America

North America, a highly dynamic and competitive market, is Ranbaxy's largest market.
Both USA and Canada (North America) offer a significant opportunity for Ranbaxy, based
on their size and potential.

During 2006, consolidated sales for US and Canada increased by 18% over 2005. Sales
from the US market stood at US $ 379 Mn, representing a 15% increase over 2005.
Ranbaxy in Canada, ranked 9th among the generic companies in terms of sales and
market share, with sales of US $ 12 Mn during our first full year of .During 2006, Ranbaxy
marketed multiple products to pharmacies throughout Canada. This enabled the
Company to achieve the No. 1 position in Ciprofloxacin and Fentanyl sales, No. 2 for
Risperidone and No. 3 for Zopiclone in the Canadian market. Due to patent approval of
Pravastatin in Canada it is expected to exposure to market of CAD $729 mn in
forthcoming years.

4.8.2. USA

During the year, the Company launched 10 new products in the US market.
Simvastatin 80 mg, was a blockbuster, anti-cholesteremic agent, was the key contributor
to Ranbaxy's US growth, bringing in ~ US $ 60 Mn by capturing a 56% market share
during the 180-days exclusivity period. Post the exclusivity period, the Company also
launched 5, 10, 20, 40 mg strengths of Simvastatin. Ranbaxy's branded division number
of products that support the expansion plan for USA Canada. The product basket
comprising 10 products marketed under the Ranbaxy label made a significant impact.

4.8.3. India

Ranbaxy achieved and maintained the No. 1 position in the Indian market, from the
middle of the year. Sales during the year was US $ 260 Mn, recording a 17% increase
over the previous year. Its market share has increased from 5.0% in 2005, to 5.1% in
2006, with 9 brands in the Top 100 list, 21 brands in the top 300 list and 3 new products
in the Top 30. Due to gaining momentum in brand image its chronic franchise’s position
in strengthening. Its rankings amongst specialists, viz Urologists, Diabetologists,
Dermatologists, Nephrologists, ENT and Consulting Physicians, have also improved. With
the implementation of the Patent regime, Ranbaxy has identified Novel Drug Delivery
System (NDDS) and in-licensing, as strategic focus areas. It continued its quest to remain
the largest NDDS marketing company, with a 7.9% market share. NDDS contributed 9%
to the turnover of the India business. Key new products introduced through in-licensing
were, Synasma (Doxophylline) and Trambax (Tramadol Flash Tabs).
4.8.4. UK

In 2006, the UK generics market was characterized by severe pricing competition,

leading to the Company's marginal decline in revenues to US $ 35 Mn. During the year, it
launched 6 new products including Ondansetron and other in-licensed products, that
made important contributions to UK business. It achieved a 2.7% share of the UK
generics market. The branded respiratory business grew strongly, following the launch of
Easyhaler Budesonide. Sales of Visclair and Distaclor continued to grow steadily. Even
though having tough competitions due to new launches especially in generics this
market will be profitable.

4.8.5. France

It registered sales of US $ 69 Mn, after absorbing a 15% price cut experienced in the
market at the beginning of the year, impacting sales which were lower by 7%. Yet the
business turned positive at the operating margins (EBIDTA) level, led by the
manufacturing switch program, involving cost advantages in resourcing products from
Ranbaxy in India. It expanded its portfolio in France through 76 Market Authorisation
(MA) filings and obtaining 37 new market authorizations. During the year, 23 SKUs were
introduced.

4.8.6. Germany

In Germany, sales at US $ 29 Mn were impacted by the changing market conditions. Due

to reforms in the German healthcare system, the market grew at 1.5% in value terms.
Ranbaxy launched five important products, namely Cefaxetil, Gabapentin, Omperazole,
Ondansetron and Lisinopril HCTZ, all of which contributed positively to the growing
strength of Basics in Germany.

4.8.7. Italy
Italy’s generic pharma valued at US $ 550 Mn, is growing much stronger as the Italian
government attempts to tackle its healthcare spend by encouraging wider use of
generics. Ranbaxy's acquisition of Allen, GSK's non-branded product portfolio, covering
close to 20 products, provided an ideal base for fast tracking the Company's presence in
this market. The Allen portfolio was augmented with the introduction of Ranbaxy-labeled
Sertraline and Co-Amoxyclav. Ranbaxy recorded sales of US $ 5 Mn. It is currently
ranked as the 9th-largest generics company by sales

4.8.8. Spain

Sales in Spain at US $ 10 Mn grew by 146% in 2006, and it achieved a 2% market share

in the fast growing generics segment. With the acquisition of Mundogen, the generics
business of GlaxoSmithKline, it expanded its product basket to 40 products. Ranbaxy in
Spain achieved eight new product launches in 2006 sourced from partnerships and
Ranbaxy's own pipeline.

4.8.9. Poland

Driven by our products in the Cardiovascular and Anti-infectives segment in Poland,

Ranbaxy grew ahead of the market with a growth of 50% at sales of US $ 16 Mn. The
Company also launched Ceroxim Suspension (Cefuroxime Axetil), the first generic on the
market, and Melobax (Meloxicam), which allowed it to successfully enter the
Rheumatology therapeutic segment. Ranbaxy is further strengthening its position in the
cardiovascular and hospital segments, through partnerships with other pharma
companies.

4.8.10. Romania

The Company 's largest acquisition so far, Terapi a in Romania, has been successfully
integrated during the year and rechristened as 'Terapia Ranbaxy.' The entity recorded
combined sales of US $ 73 Mn. The Company is ranked at No. 6, with a market share of
5.6% in value terms and 10.2% in volume. The Company grew by approximately 45%
over 2005, thus consolidating its position as no 1 in generics company.

4.8.11. Russia (including Ukraine)

Ranbaxy in Russia and Ukraine achieved sales of US $ 65 Mn, reflecting a growth of 22%.
Ranbaxy in Russia is currently ranked 13th amongst all generic companies. During the
year, it received regulatory approvals for four products and launched Revital - Calci D3
and Adliv for liver disorders in the OTC segment.

4.8.12. Japan
The Japanese pharma market, with a low generic penetration valued at US $ 3 Bn,
represents 5% of the overall pharma market. During the year, its 50:50 Joint Venture,
Nihon Pharmaceutical Industry company Ltd (with Nippon Chemiphar), clocked in sales of
US $ 24 Mn. Also, two products, Clarithromycin Tablets and Terbinafine Tablets, were
successfully introduced. Voglibose and Clarithromycin enjoy an IMS ranking amongst the
2 top selling generic brands.

4.8.13. Africa

Africa sales at US $ 85 Mn grew at 24% in 2006. The re-registration of the Anti-retroviral

range of products by WHO, enabled the Company to regain its market share in this
segment. The Company, with its presence in 43 African countries, three subsidiaries
and five representative offices, has established one of the largest marketing and selling
networks in Africa.

South Africa, the Company's largest market in the continent, recorded sales of US $ 24
Mn, similar to last year. During the year, the acquisition of Be-Tabs, the fifth-largest
generic pharma company in South Africa, with a turnover just under US $ 30 Mn, has
clearly positioned Ranbaxy amongst the top 5 generics companies, and made it a
significant player in South Africa.

4.8.14. Latin America

The Company's business in Latin America clocked in sales of US $ 48 Mn, growing over
21%. Key markets of Brazil and Mexico, together contributed 78% to regional sales.

4.9. Therapy Focus

Ranbaxy's diverse product basket of over 5,000 SKUs available in over 125 countries
worldwide, encompasses a wide therapeutic mix covering a majority of the chronic and
acute segments. Healthcare trends project that the chronic treatment segments will
outpace the acute treatment segments, primarily driven by a growing aging population
and dominance of lifestyle diseases. Its robust performance in Cardiovasculars, Central
Nervous System, Respiratory, Dermatology, Orthopedics, Nutritionals and Urology
segments, clearly indicates that the Company has strengthened its presence in the fast-
growing chronic and lifestyle disease segments. Ranbaxy's top 20 products, ranging from
Anti-infectives to Dermatologicals, account for revenues of over US $ 600 Mn.

The Company has also undertaken significant investments to grow organically in key
areas like 'Penems' and 'Limuses' providing unique competitive advantages. Licensing
agreements and an alliance model have been used successfully to gain a strong foothold
into new therapies like Oncology and Bio-similars, which are poised to grow significantly
in the future.
The progress in some of the key segments during the year, high lights our endeavor
towards augmenting its therapeutic presence across multiple markets.

4.9.1. Anti-infectives

The Anti-infectives (AI) segment remained the leading therapeutic segment for the
Company, contributing up to 44% of global dosage form sales, which also reflects an
uptrend on the chronic segment contribution to the overall sales during the year. This
segment is expected to offer lucrative opportunities, resulting from patent expiries of
several leading global products. Ranbaxy is well positioned to capitalize on these
opportunities. During 2006, the Faronem (Faropenem) launch in India met with good
success, with the product entering the top 30 new products of the industry.

4.9.2. Cardiovasculars

The Cardiovasculars segment posted a healthy growth of 60%. This performance was
propelled by the US launch of Simvastatin, with its 80 mg strength garnering over 50%
market share in USA, during the 180-days exclusivity period. The Company also
launched the first generic Atorvastatin, under the brand name Storvas, in Malaysia.

4.9.3. Respiratory

The Asthma / COPD segment dominates the global Respiratory therapeutic category,
with a share in excess of 50%. The incidence of Asthma is increasing worldwide, and
COPD mortality is expected to increase dramatically. The company registered a healthy
double digit growth of 29% in the segment. The company is introduced numerous new
products, with many of them featuring as ‘first time’ launches in Indian pharmaceutical
market. The company launches HFA (Hydro Fluoro Alkane : the propellant) based
pressurized metered dose inhaler, being strongly recommended worldwide by regulatory
agencies to address growing concern regarding CFC (chloro Fluoro Carbons) based
inhalers. The Company is well positioned to provide respiratory products in both
formulations - 'Dry Powder Inhalers’ and ‘Metered Dose Inhalers’, using the most
advanced formlations.

4.9.4. Central Nervous System (CNS)

The population with CNS disorders worldwide is rising steadily, driven by an aging
population, improved diagnostic techniques, increased physician and patient awareness,
and a gradual shift away from the social stigma traditionally attached to many
psychiatric conditions. The CNS therapeutic segment emerged as the second-fastest
growing segment for the Company, recording a growth of 36%. The Company entered
into strategic licensing and supply agreements for Canada and US, which helped to
bolster its performance in this segment.
4.9.5. Gastrointestinals

The 'Proton Pump Inhibitors' represent the largest sub class within the gastrointestinal
segment, with a share in excess of 80%, and are currently driving the global
gastrointestinal segment. The next decade will witness patent expiries of key products
from the 'Proton Pump Inhibitors' sub-class, representing attractive opportunities for the
Company. The Company registered a healthy growth rate of 24% in the gastrointestinals
segment.

4.9.6. Musculoskeletal

The demand for prescription pain management products continues to grow, due to
favorable demographics, increasing incidence of chronic pain conditions, and increasing
physician recognition of the need to treat patients' pain. The Rheumatology and
Musculoskeletal drugs category for the Company, registered a healthy growth of 19%.

4.9.7. Anti- retrovirals

The Company made notable achievements in the Anti-retrovirals segment in 2006. The
WHO, included four additional ARV products of the Company in its pre-qualification list,
comprising different strengths of Efavirenz and Stavudine, taking the Company's total
pre-qualification list to 12 ARVs.

The Company also received approval to manufacture and market Triviro-LNS kid and
Triviro-LNS kid DS, both triple ARV dispersible tablets for children, in India. The Company
also became the 'First to File' such a pediatric product with WHO, for pre-qualification.

4.9.8. Others

Oncology sales are expected to witness the highest growth rate in the next decade, and
the main reasons for this include the aging population, trends in prevalence of smoking
and an increase in unhealthy lifestyles. This presents a significant opportunity across the
entire cancer market. This includes generic products also, as global Oncology sales are
expected to rise in line with increasing incidence of the disease. Ranbaxy has entered
into an agreement with Zenotech Laboratories Limited in India, for 11 Oncology products
to be marketed as generic formulations in the US and Canada under the Ranbaxy label.
The Company has thus undertaken efforts to enter fast-growing segments and develop a
competitive advantage.

On another occason, Ranbaxy responded quickly to the growing concerns of the Avian
Flu virus spread, by offering to supply Oseltamivir within a short period of time. During
the year, the Company fulfilled the need of the Malaysian government, by manufacturing
and supplying the generic Oseltamavir under the brand name Fluhalt in Malaysia, thus
becoming the first company to receive approvals to market the generic Oseltamavir in
the country.

Products: Top ten molecules are Simvastatin, Amoxy+Clav Potas Com, Amoxycillin
Ciprofloxacin, Isotretinon, Cephalexin, Ketorolac Tromethamine, Cefaclor, Clarithromycin,
Cefuroxime Axetil. They are expected to be beneficial as some have got exclusive
approval for patent in different nations.

4.10. New Drug Discover Research

In the NDDS segment, Ranbaxy is the market leader with 7.9% market share and its
NDDS product portfolio contributes to about 9% of its total turnover. Its product portfolio
spans across Acute & Chronic Business covering Anti-infectives, Nutritionals, Gastro-
intestinals, Pain Management ( Acute) Cardiovasculars, Dermatologicals, Central Nervous
Systems (Chronic)segments.Company’s India operations are a dominant force in a
number of participating therapeutic segments, for example Anti-infectives, Statins,
Dermatology and Pain Management Operations are structured into 9 Strategic Business
Units. Amongst the pharmaceutical companies in India, Ranbaxy has the largest R&D
budget with an R&D spend of over US $ 100Mn. The robust R&D environment within the
company for both drug discovery & development and for generics is designed to bring
into sharper focus, the unique needs of both equally. Ranbaxy's endeavour is to be a
leader in the generics space and also to build a strong proprietary prescriptions business
based on the Company's NDDS and NCE (New Chemical Entity) research outcomes.

On the New Drug Discovery front, the Company is focusing on therapeutic segments of
Infectious Diseases, Metabolic Diseases and Inflammatory / Respiratory Diseases. During
the year, the Company also initiated target-based research in the area of Oncology.

During the year, the Company received approval on its Investigational New Drug (IND)
application from the Drugs Controller General of India, to initiate Phase I Clinical studies
on RBx 10558, a potential drug candidate for Dyslipidemia. The molecule has been out
licensed to Pharmaceutical Product Development Inc. (PPD), a leading global Contract
Research Organization for clinical development.

The Company is also profiling DPP-IV Inhibitors (Di-Peptidyl Peptidase IV Inhibitors) for
Type 2 diabetes, a selective Phosphodiesterase 4-b inhibitor for COPD and Asthma, and a
novel atibiotic antibacterial for Community Acquired Respiratory Tract Infection.

Arterolane, the potential Anti-malarial candidate is currently undergoing Phase IIb

studies (dose range finding studies) in Africa, Thai land and India.
The Company continues to forge ahead with its various research alliances, in order to
expedite its Drug Discovery activity.

Significant progress has been made on two research programs, one each in the Anti-
infective and Respiratory segments, that are being pursued with GlaxoSmithKline (GSK).
Consequently, Ranbaxy and GSK have expanded the original agreement and Ranbaxy
has the responsibility for advancing the selected compounds whereby total milestone
payments, excluding royalties, could exceed over US $ 100 Mn. Recently the joint
steering committee of the two companies approved a Respiratory Inflammation
compound for further development through preclinical studies by Ranbaxy, to support
the application of an Investigational New Drug (IND). Ranbaxy will also be responsible for
conducting Phase I and Phase II clinical studies. GSK will then have the option to conduct
further development up to the final commercialization stage.

Under an alliance with Anna University, India, a number of medicinal plants are being
evaluated as potential sources for novel pharmaceutical agents. The Company also has a
collaborative research project with NIPER, Mohali, in the area of Respiratory disease and
another one with NCL, Pune, in the area of Infectious disease.During the year, the drug
discovery team filed 34 patent applications in India and 2 in USA.

4.10.1. Novel Drug Delivery System (NDDS - Oral Controlled Drug Delivery
Systems)

During the year, the Company filed 4 NDDS products with the US-FDA and introduced 3
NDDS products (Ofloxacin OD 600 mg, Metformin SR 500 mg + Pioglitazone 15 mg +
Glimipiride 1 g, and Oxcarbazepine OD 900 mg) in the domestic market. The Company
has a number of oral controlled release products in advanced stages of development and
has filed seven patents in India.

4.10.2. Pharmaceutical Research

Apart from 3 NDDS that were introduced through in house R&D efforts , the company
also launched 56 new products and line extensions in domestic market of these 25 were
developed in house and 31 were out sourced/ in licensed. In the European Union, the
Company made 33 filings or 26 products, comprising 27 National Filings for 20 products
in 10 EU Reference Member States, 3 filings for 3 products under Mutual Recognition
Procedure in 23 EU Concerned Member States, and 3 filings for another 3 products under
De-Centralized Procedure in 26 EU Concerned Member States. In emerging markets
comprising the BRICS (Brazil, Russia, India, China & South Africa) Countries, a total of 95
filings were undertaken. These included 5 for Brazil, 53 for Russia (incl. CIS), 17 for India,
3 for China and 17 for South Africa. During the year, the team filed 30 patents in India.

4.10.3. Chemical and Fermentation Research(Active Pharmaceutical

ingredients)
During the year, scale-up and technology transfer was completed for 11 new APIs. The
emphasis throughout had been on developing novel (patentable), safe and
environmental friendly processes for the production of APIs meeting international quality
specifications. The Company also filed 171 Drug Master Files, comprising 46 APIs across
various countries, and 46 patents in India.

4.10.4. Herbal Drug Research

The Company is continuing with its focus on developing safe and effective herbal drugs
complying with international quality standards. Stringent quality measures including
heavy metal analysis, aflatoxins and pesticide residue evaluation are carried out on
every herbal product that is developed by the Company. Currently, the Company has
several niche OTC products under different phases of development. The Company is also
exploring herbal extracts as potential therapeutic interventions for multi-genic complex
diseases, such as diabetes and inflammation. The Company has identified several herbal
extracts, for which further profiling and characterization is ongoing. During the year, the
Company also developed quality standards for 5 medicinal plants for their inclusion in
the Indian Pharmacopoeia. Quality standards of 10 medicinal plants that were developed
during 2005, have been included in the addendum of the Indian Pharmacopoeia in
2006.The Company filed three patents in this segment.

4.10.5. Different Dosage Forms

For value addition the forms being changed in different forms like

 Soft Gel
 Dispersible tabs / chewable tabs
 Taste masking
 Gels
 Effervescent
5.1. Patent Approvals

Patent approvals open wider Markets for Ranbaxy.

 Launch of PRAVASTATIN SODIUM 80 mg Tablets in USA

On 25th June Ranbaxy Laboratories Limited (RLL), announced that the Company’s
wholly owned subsidiary, Ranbaxy Pharmaceuticals Inc. (RPI), has launched
Pravastatin Sodium 80 mg Tablets in the U.S. healthcare system. Being the first-to-
file, Ranbaxy will enjoy a 180 day exclusivity for Pravastatin 80mg and benefit
from the commercial gains during this period. The annual sales for Pravastatin
80mg are $ 209 Mn.

It is an addition to expanding product portfolio of generic alternatives. Pravastatin

is indicated in the treatment of primary prevention of coronary events such as in
hypercholesterolemic patients without clinically evident coronary heart disease.
Pravastatin is also indicated to reduce the risk of myocardial infarction, reduce the
risk of undergoing myocardial revascularization procedures and reduce the risk of
cardiovascular mortality with no increase in death from non-cardiovascular causes.
It is also indicated for treatment in the secondary prevention of cardiovascular
events such as in patients with clinically evident coronary heart disease to reduce
the risk of stroke and stroke/transient ischemic attack (TIA), and slow the
progression of coronary atherosclerosis.

 Tentative approval from USFDA for TAMSULOSIN CAPSULES

On 22nd June, Ranbaxy Laboratories Limited (RLL), announced today that the
Company has received tentative approval from the U.S. Food and Drug
Administration (US FDA) to manufacture and market Tamsulosin Hydrochloride
Capsules, 0.4 mg. Tamsulosin HCl capsules are indicated for the treatment of the
signs and symptoms of benign prostatic hyperplasia. Total annual market sales for
Flomax, Tamsulosin HCl capsules were $1.1 billion. It is expected that Ranbaxy
will be introducing this formulation with a 180-day period of exclusivity assuming
the successful resolution of the patent litigation regarding this product

 Tentative approval for AMLODIPINE BESYLATE TABLETS

On 20th June, Ranbaxy Laboratories Limited (RLL), announced today that the
Company has received tentative approval from the U.S. Food and Drug
Administration to manufacture and market Amlodipine Besylate Tablets, 2.5 mg
(base), 5 mg (base) and 10 mg (base). Total annual market sales for Norvasc,
Amlodipine Besylate Tablets were $2.79 billion. Amlodipine Besylate Tablets are
used for the treatment of hypertension and may be used alone or in combination
with other antihypertensive agents. Amlodipine Besylate is also indicated for the
 symptomatic treatment of chronic stable angina and may be used alone or in
combination with other antianginal agents. The product is also indicated for the
treatment of confirmed or suspected vasospastic angina and may be used as
monotherapy or in combination with other antianginal drugs. It is expected to get
final approval and provide wider opportunities for growth.

 Wins on four Atorvastin patents in Norway

Ranbaxy Laboratories Ltd has announced that the Norwegian Appeals Court May
29, 2007 handed down a favorable decision for the Company in its case against
Pfizer, involving key Norwegian patents on Atorvastatin in Norway. Atorvastatin is
a cholesterol-lowering drug which is marketed by Pfizer as Lipitor. This is a most
important decision for Ranbaxy as it completely validates its position in relation to
the Atorvastatin patents. This decision will allow Ranbaxy to market an affordable,
generic dosage form of Atorvastatin that will be of benefit to Norwegian patients.

 Ranbaxy Labs gains on US rights for dermatology products

On 28 May 2007, Ranbaxy Laboratories announced that its wholly owned

subsidiary, Ranbaxy Laboratories Inc. has acquired from Bristol-Myers Squibb
Company (BMS) the US rights to a group of 13 dermatology products. Ranbaxy
Laboratories Inc(RLI) is engaged in the sale and distribution of branded
prescription products in the US healthcare system. These products have been
utilized in the treatment of acne, dermatitis, psoriasis, fungal infections and
scabies. Ranbaxy already has a strong presence in the acne segment of the
dermatology market with its best-selling product, sotret isotretinoin capsules for
the treatment of severe recalcitrant nodular acne. Sotret is the largest selling
brand among the Isotretinoin brands with a market-share in excess of 36%.

 Approval for Pravistatin in Canada

On 21May 2007 it had received approval to make and market its branded version
of the cholesterol-lowering Pravastatin in Canada

5.2 Excellent Growth in First Quarter

Ranbaxy’s net profit rose 129.5% to Rs 115.28 crore in Q1 March 2007

compared to Rs 50.24 crore in the same period last year. Sales rose 25.8% to Rs
988.17 crore in Q4 March 2007 (Rs 785.52 crore). The net profit jumped 70.1% to
Rs 380.54 crore in the year ended 31 December 2006 (FY 2006). Sales rose 15.1%
to Rs 3923.88 crore in FY 2006 (Rs 3408.13 crore)
5.3. Mergers and Acquisitions
The generic industry continued to witness a spate of M&A deals signifying the
increasing consolidation in the industry. The dynamic landscape is fuelling inorganic
growth opportunities whereby more and more companies are focusing on the need to
gain size and scale in large generic markets, enhancing their presence across newer
and more complex therapeutic segments and broadening their market presence in
branded generics Ranbaxy was also active in M&A, having completed the following
transactions during the year:

 Terapia S.A. (Romania)

Post approval from the Romanian Competition Council, the acquisition of Terapia
SA has been successfully concluded in June 2006. It opened a wider market for
Ranbaxy which is expected to give results in the future years.

 Ethimed (Belgium) and Allen (Italy)

The acquisitions of Ethimed NV, a generics company in Belgium, and of Allen SPA,
the unbranded generics business of GlaxoSmithKline in Italy, have been
successfully completed last year. Glaxo SmithKline is among the top ten
companies in the world. Acquiring its business will provide better tools and
techniques to Ranbaxy which will help in R&D and increasing the market share,
sales and profits of the company.

 Be-Tabs Pharmaceuticals (Proprietary) Limited (South Africa)

Be-Tabs Pharmaceuticals (Proprietary) Limited (Be-Tabs) is the 5th-largest

branded generics company in South Africa with turnover
a of US $ 29 Mn and with
good profitability. The Company has entered into an agreement for acquisition of
100% Equity stake in Be-Tabs for a consideration of about US $ 70 Mn. Be-Tabs is a
good strategic fit for the Company in the largest Pharma market of the African
continent and will enable your Company to further strengthen its presence in this
market. The CompetitionCouncil of South Africa has approved the acquisition and
the transaction was approved on 8th May 2007 .

 Mundogen (Spain)

Mundogen S.p.A constituted the generics business of Glaxo SmithKline in Spain.

The Company has an existing product basket
and a well established sales network
with good coverage. This acquisition is expected to provide significant
momentum for growthin the Spanish market.

 Zenotech Laboratories (India)

 In order to enhance its manufacturing competitiveness Ranbaxy acquired 6.94%
Equity stake in M/s Zenotech Laboratories Limited Hyderabad for a consideration
of Rs. 200 Mn. This strategicstake , would help the Company to gainaccess to
the high growth therapeutic segment of Oncology for a number of markets.

 Krebs Biochemicals & Industries (India)

14.9% Equity stake in M/s Krebs Biochemicals & Industries Limited, Hyderabad,
for a consideration of Rs. 89 Mn. Thisstrategic stake would enable the
Company to gain access tolow cost manufacturing of fermentation
based products.

 Cardinal Drugs(India)
Active pharmaceutical ingredients based manufacturing facility of M/s Cardinal
Drugs Ltd., Gwalior. This would further augment the
vertical integration
strengths and expand existing manufacturing capacities .

 Senetek PLC’s proprietary

The Company has acquired Senetek PLC's proprietary technology to gain access
to such niche patented technologies. Senetek
PLC's proprietary disposable autoinjector technology is for self-administration of
parenteral drugs used in emergency treatment
for anaphylactic shocks.

5.4. Wider Opportunities

 The fundamental growth drivers of generics remain strong.

 With its capabilities in vertical integration, a robust product pipeline and an India
centric lower cost manufacturing base, it is well placed to capitalize on the opportunities in
the generics space.

 The Company has a well balanced mix of revenues from the developed and emerging
markets and is present in 23 of the top 25 markets in the world.

 In USA, its potential for revenue growth from generic products is closely related to its
pipeline of pending ANDAs, as well as tentative approvals already granted. As of December
31, 2006, they had 197 ANDAs filed with the US FDA, of which 121 have been approved. Of the
76 ANDAs pending approval, based on their analysis of publicly available US FDA data, they
are first to file on 20 of these ANDA applications, which relate to brand-name drugs having
aggregate sales in the United States of more than US $ 25 Bn.

 With high uptake of lower-cost therapies replacing branded products in classes such
as lipid regulators, antidepressants, respiratory agents, the increasingly active role of
patients demanding greater access to lower cost products, and the large value of branded
drugs going off-patent, generics will assume a more important role going forward.

 Mounting efforts on the part of insurers and employers to encourage use of generics
to control healthcare costs, will also be an important growth driver for the segment.
 It is believed that Europe, including CIS, would be a key growth driver for the Company
while countries in Western Europe, such as Germany and France, to be stable.

 The under penetrated generic markets of Spain and Italy provide a lucrative
opportunity for growth and the Company is expected to make, organic and inorganic efforts
to progress in these markets.

 Presently, the Company is present in 23 of the 27 EU countries, signifying its

expanding footprint in EU. With the front end infrastructure in place, the Company is well
geared to capitalize on the growing opportunities in the market.

 The outlook on the Indian Pharma market continues to be positive, with volume
consumption driving the market (only 32% of Indians as of now use allopathy medicines and
drug consumption at US $ 7 per head is one of lowest in the world). With India becoming a
signatory to the WTO and introduction of the Patent Product regime, the Indian market will
be an attractive option for introduction of research-based products. Ranbaxy, the leading
pharmaceutical company in India, is well set to become a partner of choice in the Indian
market.
 The Company has a strong reach in Metro cities, as well as extra urban areas, with its
wide distribution network. Ranbaxy has been successful in building new product concepts
with the focused approach of its specialty teams.
6.1. Balance Sheet
Year-------> 2006.00 2007(E) 2008(E) 2009(E) 2010(E) 2011(E)
Particulars Rs in Mn Rs in Mn Rs in Mn Rs in Mn Rs in Mn Rs in Mn
Total Assets 69248.49 75512.06 84767.46 95781.38 106128.67 118028.06
A Current
Assets 25089.94 29760.19 35414.62 42143.40 48464.91 55734.65
Cash and Bank
Balances 711.51 945.44 1125.07 1338.84 1539.66 1770.61
Sundry Debtors 10137.45 10946.13 13025.89 15500.81 17825.93 20499.82
Inventory 9549.12 11522.33 13711.58 16316.78 18764.30 21578.94
Misc. Current
Asset 780.85 1161.86 1382.61 1645.31 1892.10 2175.92
Loan & Advances 3911.01 5184.43 6169.47 7341.67 8442.92 9709.36
B Fixed Assets 16751.16 18212.25 21672.58 25790.37 29658.92 34107.76
Plan and
Machinery 19685.66 20555.06 24460.52 29108.02 33474.22 38495.35
Less Depritiation 5953.29 6539.98 7782.58 9261.27 10650.46 12248.03
Net Asset 13732.37 14015.07 16677.94 19846.75 22823.76 26247.32
WIP 3018.79 4197.18 4994.64 5943.62 6835.17 7860.44
C Investments 26799.45 26799.45 26799.45 26799.45 26799.45 26799.45
D Miscellaneous
Assets 0.00 0.00
E Intangible
Assets 607.94 740.17 880.81 1048.16 1205.39 1386.19
Asset 1650.08 1864.83 2219.15 2640.79 3036.90 3492.44
Less Depriciation 1042.14 1124.66 1338.34 1592.62 1831.52 2106.25
Total
Liabilities 45748.36 35623.62 42392.11 43955.14 51522.13 60224.17
F Current
Liabilities 7233.30 9590.16 11412.29 13580.62 15617.72 17960.37
G Provisions 5226.68 6069.50 7222.70 8595.01 9884.26 11366.90
H Deferred
Liabilities 33288.38 19963.97 23757.12 21779.50 26020.15 30896.89
Net Worth 23500.13 24936.32 27120.62 36897.96 41218.71 46729.58
I Share Capital 1872.22 1872.22 1872.22 1917.53 1917.53 1917.53
Prefernce Capital 0.00 0.00
Equity Capital(plus
Deffered Capital,if
any) 1863.43 1863.43 1863.43 1908.74 1908.74 1908.74
Application money 8.79 8.79 8.79 8.79 8.79 8.79
J Reserves and
Surplus 21627.91 23064.10 25248.40 34980.43 39301.18 44812.05
Share Premium
Reserve 5599.60 5599.60 5599.60 12045.76 12045.76 12045.76
Capital Reserve 5.41 5.41 5.41 5.41 5.41 5.41
General Reserves 15351.24 15801.24 16251.24 16701.24 17151.24 17601.24
Sinking Funds and
Redemption
Reserves 0.00 0.00 0.00 0.00 0.00
Investment 0.00 0.00 0.00 0.00 0.00 0.00
allowances 0.00 0.00 0.00 0.00 0.00 0.00
Reserve/Statutory
Development
Rebate Reserve 0.00 0.00 0.00 0.00 0.00 0.00
Free Reserve &
Surplus 471.18 1457.37 3191.67 6027.54 9898.29 14959.16
Foreign Project
Reserve 62.72 62.72 62.72 62.72 62.72 62.72
Employee Stock
Option 94.01 94.01 94.01 94.01 94.01 94.01
Amagamation
reserve 43.75 43.75 43.75 43.75 43.75 43.75
K Balance sheet
Difference 14952.13 15254.73 14928.29 13387.84 11074.31
Total 75512.06 84767.46 95781.38 106128.67 118028.06
6.2. Profit and Loss Account
Year 2006.00 2007(E) 2008(E) 2009(E) 2010(E) 2011(E)
Particulars Rs in mn Rs in mn Rs in mn Rs in mn Rs in mn Rs in mn
Net Sales 39777.68 47387.62 56391.27 67105.61 77171.45 88747.17
Sales(Or Operating Income) 13411.42 15541.88 18494.83 22008.85 25310.18 29106.71
Export Sales 27175.65 31560.00 37556.40 44692.11 51395.93 59105.32
Less Trade Discount 1348.28 1597.06 1900.50 2261.60 2600.84 2990.96
Other Income 538.89 1882.81 2240.54 2666.24 3066.18 3526.10
Cost of goods sold 21631.76 25636.55 30507.50 36303.92 41749.51 48011.93
Material Consumed 16323.82 19281.89 22945.45 27305.08 31400.84 36110.97
Wages and Salaries 3310.85 4036.29 4803.19 5715.79 6573.16 7559.14
Direct Mfg. Expenses 1997.09 2318.37 2758.86 3283.05 3775.50 4341.83
General Expenses 8582.78 10545.67 12549.34 14933.72 17173.77 19749.84
Research & Development
Expenses 3863.35 5059.40 6020.69 7164.62 8239.32 9475.21
Gross Profit 5699.79 6146.00 7313.74 8703.35 10008.85 11510.18
Interest 584.44 402.69 479.20 570.25 655.78 754.15
EBIT 4632.29 5209.48 5987.98 7125.69 8024.91 9228.65

Pre Dedpriciation Operating Profit 5115.35 5743.31 6834.54 8133.10 9353.07 10756.03
Depriciation,
Amortization,Impariment 1067.50 936.52 1325.76 1577.65 1814.30 2086.45
Operating Profit 4047.85 4806.79 5508.78 6555.45 7538.77 8669.58
Non-Operating Surplus(+) or
Deficit(-) 381.91 822.59 978.88 1164.86 1339.59 1540.53
Pre-Tax Profit 4429.76 5629.38 6487.66 7720.31 8878.36 10210.11
Provision For Taxation 478.49 579.81 689.97 821.07 944.23 1085.86
Net Profit 3951.27 5049.57 5797.68 6899.24 7934.13 9124.25
Balance as per last balance sheet 560.34 471.18 1457.37 3191.67 6027.54 9898.29
Transfer from foreign Project reserve 22.95 0.00 0.00 0.00 0.00 0.00
Balance Available for appropriation 4543.56 5520.75 7255.05 10090.92 13961.67 19022.54
Profit Distributed 3613.38 3613.38 3613.38 3613.38 3613.38 3613.38
Pref. Dividend
Equity Dividend 3168.94 3168.94 3168.94 3168.94 3168.94 3168.94
Proposed dividend 0.00
Tax on Dividend 444.44 444.44 444.44 444.44 444.44 444.44
Transfer to
Foreign Project Reserve 0.00 0.00 0.00 0.00 0.00 0.00
General Reserve 450.00 450.00 450.00 450.00 450.00 450.00
Surplus Carry Forward 471.18 1457.37 3191.67 6027.54 9898.29 14959.16
Profit Retained 921.18 1907.37 3641.67 6477.54 10348.29 15409.16
6.3. Percentage Change year to year in P & L Account
Year % change Y-o-Y
2005-
Particulars 06 2006-07 2007-08 2008-09 2009-10 2010-11
Net Sales 11.43 19.13 19.00 19.00 15.00 15.00
Sales(Or Operating Income) 11.80 15.89 19.00 19.00 15.00 15.00
Export Sales 16.28 16.13 19.00 19.00 15.00 15.00
Less Trade Discount 4.90 18.45 19.00 19.00 15.00 15.00
Other Income -66.66 249.39 19.00 19.00 15.00 15.00
Cost of goods sold 9.15 18.51 19.00 19.00 15.00 15.00
Material Consumed 8.47 18.12 19.00 19.00 15.00 15.00
Wages and Salaries 9.76 21.91 19.00 19.00 15.00 15.00
Direct Mfg. Expenses 13.93 16.09 19.00 19.00 15.00 15.00
General Expenses -1.82 22.87 19.00 19.00 15.00 15.00
Research & Development
Expenses -20.57 30.96 19.00 19.00 15.00 15.00
Gross Profit 150.65 7.83 19.00 19.00 15.00 15.00
Interest 121.29 -31.10 19.00 19.00 15.00 15.00
EBIT 267.45 12.46 14.94 19.00 12.62 15.00
Pre Dedpriciation Operating
Profit 154.51 12.28 19.00 19.00 15.00 15.00
Depriciation,
Amortization,Impariment 5.35 -12.27 41.56 19.00 15.00 15.00
Operating Profit 306.19 18.75 14.60 19.00 15.00 15.00
Non-Operating Surplus(+) or
Deficit(-) -62.45 115.39 19.00 19.00 15.00 15.00
Pre-Tax Profit 119.99 27.08 15.25 19.00 15.00 15.00
Provision For Taxation -548.07 21.17 19.00 19.00 15.00 15.00

Net Profit 86.34 27.80 14.82 19.00 15.00 15.00

Balance as per last balance
sheet -75.32 -15.91 209.30 119.00 88.85 64.22
Transfer from foreign Project
reserve -25.12 -100.00 - - - -
Balance Available for
appropriation 2.57 21.75 31.41 39.09 38.36 36.25
Profit Distributed 0.07 0.00 0.00 0.00 0.00 0.00
Pref. Dividend
Equity Dividend 240.34 0.00 0.00 0.00 0.00 0.00
Proposed dividend -100.00 - - - - -
Tax on Dividend 0.07 0.00 0.00 0.00 0.00 0.00
Transfer to
Surplus Carry Forward -15.91 209.30 119.00 88.85 64.22 51.13
Profit Retained 13.68 107.06 90.93 77.87 59.76 48.91
6.4. Discounted Cash Flow Statement

DCF Consolidated
Year Particular 2006A 2007E 2008E 2009E 2010E 2011E
Rs m Rs m Rs m Rs m Rs m Rs m
Free Cash Flow
Calculation

EBIT 4632 5209 5988 7126 8025 9229

Plus: Depreciation 5115 5743 6835 8133 9353 10756
Plus: Amortization
Plus Share of profits from
associates 0 0

EBITDA 9748 10953 12823 15259 17378 19985

Less: Capex 1461 3460 4118 4365 4627 4904

Tax rate 33% 33% 33% 33% 33% 33%

Effective tax rate
EBITDA Less Capex 8287 7492 8705 10894 12751 15080
Less: Taxes on EBIT -1529 -1719 -1976 -2351 -2648 -3045
Add: Taxes on Interst 193 133 158 188 216 249
Less: Changes in Working
Capital -2486 -1210 -1440 -1714 -1971 -2266

Unlevered Free Cash

Flow 4465 4696 5447 7017 8349 10017

WACC calculations
Risk Free rate (10 yr
bond) 7.5%
Risk Premium 5.0%
Beta 0.732
Cost of Equity 11.2%
WACC 11.2%
Market cap 134167
Debt 12311.60
Av cost of debt 2.59
Terminal growth rate 7%
6.5. Target Price Derivation

DCF
Assumptions (Rs. Mn)
DFCF-Total 26,607
Terminal Value 136,567
Total Entity Value 163,174
Less: Debt (12,312)
Add: Cash 712
Add: Investments 26,799
Equity value 178,373
No. of Shares 372.7
DCF
Value/share 479
Key Assumptions-
Risk Free Rate 7.5%
Mkt. Premium 5%
Beta 0.732
Ke 14.1%
Post -Tax Kd 3%
WACC 11.2%
Terminal Growth
Rate 7%
6.6. Charts

Net Sales

Net Sales

100000.00

90000.00

80000.00

70000.00
Net Profit
60000.00 Net Profit
Rs in Mn

10000.00
50000.00
8000.00
Rs in Mn

6000.00
Net Profit
4000.00
40000.00
2000.00
0.00
4 5 6 7 8 9 10 11
30000.00 Year(200X)

20000.00

10000.00

0.00
4 5 6 7 8 9 1
Year(200X)
6.7. Ratios

Ratios 2006 2007(E) 2008(E) 2009(E) 2010(E) 2011(E)

Valuation
Ratios
EPS (rs.) 10.6 13.55 15.56 18.51 21.29 24.48
P/E 38.39 26.57 24.81 22.36 20.85 19.40
P/BV 6.45 5.14 5.11 4.09 3.95 3.75
EV/Sales 4.52 3.79 3.19 2.68 2.33 2.02
EV/EBITDA 31.59 29.29 25.61 20.69 17.99 15.64
Debt/Equity 1.95 1.43 1.56 1.19 1.25 1.29
BV/Share 63.05 69.92 75.41 101.19 112.36 126.67
Growth
Ratios
Revenue 11.43 19.13 19 19 15 15
EDITDA 150.65 7.83 19 19 15 15
Earning 86.34 27.80 14.82 19 15 15
Efficiency
Ratio (%)
Operating 10.18 10.14 9.76 9.76 9.76 9.76
Profit Margin
EBITDA Margin 14 12 13 13 13 13
Net Profit 9.93 10.28 10.28 10.28 10.28 10.28
Margin
Fixed Asset 0.42 0.38 0.38 0.38 0.38 0.38
Turn over
Profitability
Ratios
ROE (%) 0.17 0.20 0.21 0.186 0.19 0.195
ROCE (%) 2.12 2.71 3.11 3.61 4.16 4.78
7 Technical Analysis

Technical Analysis

500
400
Value in Rs

300
Series1
200
100
0
30- 30- 30- 30- 30- 30- 30- 30- 30- 28- 30- 30- 30- 30-
5- 6- 7- 8- 9- 10- 11- 12- 1- 2- 3- 4- 5- 6-
06 06 06 06 06 06 06 06 07 07 07 07 07 07
Dates

Line chart indicates that at present the market price of the share is near to the 200 days average and hence there
is no risk in investing in this script. Presently the slope is moving downwards having average market price of Rs
360 while the stock support level is Rs 305 and stock resistance level is Rs 445. Its line curve is not declining
continuously it has shown alternate growth and decline which are due to stock movements. It has not crossed
the support level in downward direction so it is a better time to purchase the script. The script may outperform
on the basis of other triggers depending on the market scenario.

Technical Details

Current Market Price Rs 360

200 days average Rs 383
Support Rs 305
Resistance Rs 445
Conclusion

According to the present scenario company is performing on an average basis due

to strict USFDA patent norms and tougher margins. But by getting approvals for some of
its molecules and others in filings and also due to many mergers it has got access to
certain new markets and new fields. So it is expected to grow at around 19% for
consecutive 3 years and 15% hence forth.

Its EPs and BV/Share improving yearly and positive other valuations like almost
steady growth in profits and is expected to increase its profit margins as it is working
hard in cutting down costs.

Recommendations

It is recommended to BUY the stock as its target price is Rs 475 while the
current market price is ~ Rs 360. Its 52 week low is Rs 305 and 52 week High is Rs 445.
So according to target price it is going to achieve its new heights.

Limitations

Although it was a great learning experience but period of two months was not sufficient
to infuse the in and out knowledge about the research and working methodology. Other
limitation was that study is completely based on secondary data available through
internet, magazines, journals etc.