CRISIL reaffirms Ranbaxy''s outstanding ratings despite court ruling

CRISIL has reaffirmed its outstanding ratings on the fixed deposit and commercial paper programmes of Ranbaxy Laboratories Limited. The reaffirmation follows the ruling of the UK. High Court of Justice in a case led by Ranbaxy against Pfizer, challenging two of Pfizer's patents on atorvastatin (marketed by Pfizer as Lipitor). The court has ruled that though one of Pfizer's patents is invalid, Ranbaxy's product infringes the other patent. Ranbaxy has announced its intends to appeal the latter decision.

CRISIL's outstanding ratings on Ranbaxy's debt programmes did not factor in the potential upside arising from Ranbaxy launching generic atorvastatin in the regulated markets, considering the significant uncertainties involved in patent challenges. Thus, the court ruling does not alter CRISIL's view on Ranbaxy's future financial profile.

The ratings continue to reflect Ranbaxy's leading position as the largest Indian player in the global generics market and one of the top ten players globally. Ranbaxy's strong position as the third-largest player in the Indian pharmaceutical market also drives its rating. The company's strong market position derives support from its sound R&D capabilities across process re-engineering (generics), specialty drugs, novel drug delivery systems (NDDS), and basic research areas. These R&D efforts provide stability to Ranbaxy's revenue profile.

However, Ranbaxy's declining profitability because of increasing pricing pressures in its mainstay U.S. market, growing R&D expenditure, and high litigation costs continues to be a key rating sensitivity factor. The ratings do not factor in any significant cash outflow from Ranbaxy because of any liquidated damages or penalties due to ongoing litigation in the regulated markets.

Outlook: CRISIL expects Ranbaxy's credit profile to remain stable, underpinned by its well-balanced product portfolio, conservative capital structure, and strong liquidity position.

About the company: Ranbaxy is India's largest pharmaceutical company by sales. Its operations are fairly integrated, with a presence in the formulations (89 per cent of sales in 2004) and API (active pharmaceuticals ingredients [8 per cent] segments), and chemicals and other products (3 per cent). Ranbaxy also has the most diversified geographic mix, with US accounting for 36 per cent of its revenues, Europe 16 per cent, the BRIC league (Brazil, Russia, India, and China) 26 per cent, and the rest of the world accounting for 22 percent, in calendar year 2004 (refers to financial year from January 1 to December 31).

For the year ended December 31, 2004, Ranbaxy reported a consolidated (consolidated with all its subsidiaries) net profit of Rs7.0 billion (Rs7.3 billion in the previous year) on net sales of Rs52.3 billion (Rs44.6 billion). For the six months ended June 30, 2005, the company reported net profit of Rs1.73 billion (3.87 billion in the same period last year) on net sales of Rs24.86 billion (Rs25.66 billion).