GROSS PROFIT MARGIN= GROSS PROFIT (SALES –COST OF GOODS SOLD) SALES
TREND: The gross profit margin of Ranbaxy has shown a general declining trend except for one particular year which may not augur well for the company.These figures are comparable with the key competitor except for the year 2006.
REASON: The improved financial performance during the year 2006 was a result of focussed efforts on improving productivity and optimizing cost structure, besides the mix of sales but the increase in the cost of material in the very next year impacted the gross profit margin.inflation may have influenced this particular ratio.
INTERPRETATION: Despite various macroeconomic changes and external difficulties , Ranbaxy has maintained a consistent GP margin during the last two years which is a sign of
internal strengths and cost control capabilities of the company. But getting to the 2006 level still
REDDY’S 0.042 0.105 0.313 0.142 0.14
Table 5
Figure 31
TREND: Net profit ratio has not shown any major changes over the years and the movement has been rangebound if one leaves aside the last year’s performance. Ranbaxy’s performance on this front is slightly weak when compared to its key competitor Dr Reddy’s.
REASON: The decline in the performance in the year 2005 is basically due to the steep price fall in the US which is the largest market for Ranbaxy’s products. Consistent efforts towards enhancing efficiency and reducing cost did pay off in the year 2006 and 2007. The net profit ratio for the last year was marred by the forex losses realised because of the adoption of the new guidelines along with a steep decline in the value of Rupee.
INTERPRETATION: The problems faced by Ranbaxy during the last year were not of the recurrent nature and may not affect the long term. Also post the Daiichi Sankyo deal synergies are expected to emerge because of the consolidation of the two entities which will definitely
COST OF GOODS SOLD RATIO = COST OF GOODS SOLD/SALES
XY 0.457 0.481 0.461 0.492 0.492
DR
TREND: Cost of goods sold as a percentage of the sales has been consistent over the years, which is a considerable achievement. Ranbaxy has maintained its competitiveness on this front over DR Reddy’ even during the turbulent year of 2008.
REASON:The consistent efforts of the management at all levels towards improving productivity and optimising cost structure has really worked well.
INTERPRETATION: The company has done a commendable job of maintaining an almost constant cost of goods sold ratio.capitalizing on this strength the company needs to take forward this thing to a new level.
OPERATING EXPENSES RATIO = SELLING, GENERAL +ADMINISTRATIVE
TREND: Operating expenses ratio of Ranbaxy has been increaing over the last two years though it is comparable to Dr Reddy’s.
REASON: This can be possibly attributed to the increasing competition in the pharma industry along with the two major events of last year-Ranbaxy Daiichi deal and the warnings imposed by the US FDA.
INTERPRETATION: Optimising the operating expenses ratio is something the company needs to focus on because this may impact the long term competitiveness of the company.
OPERATING RATIO = COST OF GOODS SOLD+OPERATING EXPENSES/SALES
DEC
RANBAXY 0.688 0.732 0.677 0.726 0.769
DR REDDY’S 0.775 0.772 0.598 0.748 0.74
Table 8
Figure 34
TREND: Ranbaxy has maintained a lower or almost comparable operating ratio as compared to Dr Reddy’s. but there has been a steady increase in the operating ratio during the last two years.
REASON: Heavy expenses were made by the company so as to conduct market research and advertisisng and sales promotion during the last two years which got reflected to increase in the operating expenses of the company in general and selling and administration expenses in particular.
INTERPRETATION: Reducing operating expenses will add up to the efficiencies of the company and this needs to be achieved in reasonably small time so as to maintain competitiveness.
FIXED ASSET TURN OVER = COST OF GOODS SOLD/FIXED ASSET
DEC2004/MA
TREND 0.8302 0.6947 0.5592 0.4237 0.2882
Table 9 extensive capital expenses carried out by the company during 2006 and 2007.Some of which include commissioning of sterile facilities at Dewas and non sterile facilities at dewas and Toansa along with the improvement of 14 key API product capacities during the year 2006 and
Figure 35
INTERPRETATION: Ranbaxy has been quite efficient in terms of rolling out goods over all these years . Capitilization of this strength may further reinforce Ranbaxy’s dominant position in the pharma space.
CAPITAL TURNOVER = COST OF GOODS SOLD /CAPITAL EMPLOYED
DEC2004/MA
TREND 0.5742 0.4937 0.4132 0.3327 0.2522
Table 10
Figure 36
TREND: Ranbaxy has depicted a declining performance in terms of capital turnoverand has actually lost its competitiveness over Dr Reddy’s though by a slight margin.
REASON: This decline in performance should be considered keeping in mind that the cost of goods sold to sales ratio remained consistent all these years. So this decline in performance should be basically attributed to the substantial expansion of the capital structure of the company. Huge funds were raised during the 2005- 2006 period so as to facilitate the inorganic growth of the company. While the capital base was further raised during the last year because of the acquisition of Ranbaxy by Daiichi Sankyo.
INTERPRETATION: The company has failed to maintain its dominance on this front though the different is still marginal. Consolidation with Daiichi Sankyo may create a better scenario for Ranbaxy.
TOTAL ASSET TURNOVER = COST OF GOODS SOLD/TOTAL ASSET
DEC2004/MA
TREND 0.3906 0.3405 0.2904 0.2403 0.1902
Table 11
Figure 37
TREND: The performance of the company on this parameter has been declining over the years . Ranbaxy has been succesful in maintaing its competitiveness on this front also over Dr Redy’s.
REASON:The major reason behind this kind of trend is the extensive capital expenses carried out by the company during 2006 and 2007.some of which include commisioning of sterile facilities at Dewas and non sterile facilities at dewas and Toansa along with the improvement of 14 key API product capacities during the year 2006 and upgradation of Poanta Sahib,Toansa,
Malanpur and Dewas facilities during 2007along with various acquisitions carried out by the company over the years.
INTERPRETATION: There has been an expansion in the product portfolio as well as the sales of Ranbaxy. But this ratio indicates that this expansion has not been in line with the expansion of assets made by the company.