And they all forgot the Sobti angle!
After a successful revival of Ranbaxy’s financials in the past two quarters, Atul Sobti, despite his zero experience in leading a pharma major before, is trying to prove himself to be the best suited for the task. But how long will the effort last? steven philip warner analyses...
“We have got some good settlements on some products. We also have some excellent savings on selling, general and administrative expenses. Overall, in the right key markets (which are also emerging markets), we have done well. It is basically, a combination of these three factors,” says Atul Sobti, CEO & MD of Ranbaxy, when asked about the secret behind the most recently announced third quarter 2009 results, which took many by surprise. Yes, Ranbaxy had become the whipping boy for Indian media ever since the Singh family gave up charge (in June last year), and the recent ‘surprising’ quarterly disclosure – a net profit of Rs.1.86 billion for Q3, 2009, in the backdrop of a loss of Rs.3.53 billion, a year back – has brought it back into the limelight. And this marked the second consecutive profitable quarter for Ranbaxy (after three consecutive quarters of losses), ever since Atul Sobti, the 55 year-old CEO took control of Ranbaxy, five-and-a-half-months back.
First, he surprised his colleagues in August 2007, when he quit Hero Honda, having overseen a 400% jump in its annual sales units in seven-and-a-half years amidst thick competition. Then, within two months, he joined as the President (India, M-East, APAC & the Global Consumer Healthcare) of Ranbaxy. Fourteen months later, he became the COO, and in just over two years, the CEO & MD on a fine Sunday afternoon; too quick a movement up the ladder, said some then. When he took charge of Ranbaxy, most gave him little chance of playing the doctor at the bourses. The reason was simple – even under the seasoned Singh, post-Daiichi’s acquisition, Ranbaxy’s stocks had shed-off 60.4% of its value. Then there were other shadows lurking around, of patent litigation cases filed against it in US courts and the USFDA bans on imports of its drugs. Even the modest performance of Terapia (which it had bought for $324 million in 2006) due to political issues, was no motivation. Sobti had his back to the wall. That was then.
Today, after two healthy quarters of revival in bottomline, Ranbaxy’s stocks are up by 65.8%, touching Rs.416 (as on November 6, 2009; NSE). That Sobti’s fame preceded him was a fact quite evident when the mere announcement of Sobti becoming the new CEO, on May 25, 2009, saw Ranbaxy’s share price flare up by 30%. But still, critics do comment that Ranbaxy’s most recent performance could well be a momentary bliss, statements that seem a little hard on salt, given the past two quarters’ results. But Sobti does face critical issues still – topmost amongst them is the fall in revenues in the developed economies, a great danger for a generic player like Ranbaxy, whose exports account for 80% of its annual revenues. John Anthony, a Massachusetts-based analyst warns, “When it comes to choosing between the two concerns, fall in revenues and fall in net profits, then it is fall in revenues (especially in developed markets) which is more dangerous [for Ranbaxy]!” But Sobti had seen such a situation brewing months before the real events unfolded. So why did he not do anything about it for so long?
Ramesh Adige, President, Ranbaxy, defends Sobti vociferously to us, saying that it’s clearly not like that. Sobti apparently has been working double time with his team on this issue, especially given the fact that despite the 80% high dependence on exports, the company in reality “has a balanced revenue mix with emerging markets contributing 54% to our revenues,” as Adige puts it.
To his credit, Sobti has increased his focus on emerging economies and ensured that despite an alarming 30% drop in sales in developed markets, Ranbaxy’s performance in emerging economies (which contributed to 62% of its revenues this quarter) was enough to help it post a 13.5% y-o-y growth in net income to touch Rs.13.65 billion for Q3, 2009. He reallocated funds from cost-centres like R&D (where the expenditure during Q3, 2009, was reduced by 6.22% y-o-y) and cost of employee base (a y-o-y dip of 10.59%), to ensure that proceeds in the promising economies ran smooth, as Sobti shares in one interaction with us, “Revenue growth in some strategic geographical markets, and a sharp focus on cost efficiency have been the underlying themes this quarter. With good achievements on these fronts, we are confident that we are on the path to recovery…”
After a successful revival of Ranbaxy’s financials in the past two quarters, Atul Sobti, despite his zero experience in leading a pharma major before, is trying to prove himself to be the best suited for the task. But how long will the effort last? steven philip warner analyses...
“We have got some good settlements on some products. We also have some excellent savings on selling, general and administrative expenses. Overall, in the right key markets (which are also emerging markets), we have done well. It is basically, a combination of these three factors,” says Atul Sobti, CEO & MD of Ranbaxy, when asked about the secret behind the most recently announced third quarter 2009 results, which took many by surprise. Yes, Ranbaxy had become the whipping boy for Indian media ever since the Singh family gave up charge (in June last year), and the recent ‘surprising’ quarterly disclosure – a net profit of Rs.1.86 billion for Q3, 2009, in the backdrop of a loss of Rs.3.53 billion, a year back – has brought it back into the limelight. And this marked the second consecutive profitable quarter for Ranbaxy (after three consecutive quarters of losses), ever since Atul Sobti, the 55 year-old CEO took control of Ranbaxy, five-and-a-half-months back.
First, he surprised his colleagues in August 2007, when he quit Hero Honda, having overseen a 400% jump in its annual sales units in seven-and-a-half years amidst thick competition. Then, within two months, he joined as the President (India, M-East, APAC & the Global Consumer Healthcare) of Ranbaxy. Fourteen months later, he became the COO, and in just over two years, the CEO & MD on a fine Sunday afternoon; too quick a movement up the ladder, said some then. When he took charge of Ranbaxy, most gave him little chance of playing the doctor at the bourses. The reason was simple – even under the seasoned Singh, post-Daiichi’s acquisition, Ranbaxy’s stocks had shed-off 60.4% of its value. Then there were other shadows lurking around, of patent litigation cases filed against it in US courts and the USFDA bans on imports of its drugs. Even the modest performance of Terapia (which it had bought for $324 million in 2006) due to political issues, was no motivation. Sobti had his back to the wall. That was then.
Today, after two healthy quarters of revival in bottomline, Ranbaxy’s stocks are up by 65.8%, touching Rs.416 (as on November 6, 2009; NSE). That Sobti’s fame preceded him was a fact quite evident when the mere announcement of Sobti becoming the new CEO, on May 25, 2009, saw Ranbaxy’s share price flare up by 30%. But still, critics do comment that Ranbaxy’s most recent performance could well be a momentary bliss, statements that seem a little hard on salt, given the past two quarters’ results. But Sobti does face critical issues still – topmost amongst them is the fall in revenues in the developed economies, a great danger for a generic player like Ranbaxy, whose exports account for 80% of its annual revenues. John Anthony, a Massachusetts-based analyst warns, “When it comes to choosing between the two concerns, fall in revenues and fall in net profits, then it is fall in revenues (especially in developed markets) which is more dangerous [for Ranbaxy]!” But Sobti had seen such a situation brewing months before the real events unfolded. So why did he not do anything about it for so long?
Ramesh Adige, President, Ranbaxy, defends Sobti vociferously to us, saying that it’s clearly not like that. Sobti apparently has been working double time with his team on this issue, especially given the fact that despite the 80% high dependence on exports, the company in reality “has a balanced revenue mix with emerging markets contributing 54% to our revenues,” as Adige puts it.
To his credit, Sobti has increased his focus on emerging economies and ensured that despite an alarming 30% drop in sales in developed markets, Ranbaxy’s performance in emerging economies (which contributed to 62% of its revenues this quarter) was enough to help it post a 13.5% y-o-y growth in net income to touch Rs.13.65 billion for Q3, 2009. He reallocated funds from cost-centres like R&D (where the expenditure during Q3, 2009, was reduced by 6.22% y-o-y) and cost of employee base (a y-o-y dip of 10.59%), to ensure that proceeds in the promising economies ran smooth, as Sobti shares in one interaction with us, “Revenue growth in some strategic geographical markets, and a sharp focus on cost efficiency have been the underlying themes this quarter. With good achievements on these fronts, we are confident that we are on the path to recovery…”
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1 LAKH COPY SOLD in less than ten days of Prof. Arindam Chaudhuri's new book Discover The Diamond In You
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