UPDATE 1-Forex boosts Ranbaxy Q2 net but headwinds remain

Published: 26 Jul 2009 16:37:16 PST

* Net profit at 6.93 bln rupees vs 229 mln a year ago

* Excluding foreign exchange gains net profit at 633 mln

* Analysts say U.S. FDA issues remain overhang on shares (Adds quotes, details, share price, byline)

NEW DELHI, July 24 - Ranbaxy Laboratories smashed market forecasts as currency gains powered a massive rise in June quarter net profit, but U.S. regulatory hurdles are seen remaining a weight on shares of India's leading drugmaker by sales.

The company maintained its April forecast of a $150 million loss for 2009, chief executive Atul Sobti said, compared to $198 million net loss reported for last year.

Ranbaxy, in which Japan's Daiichi Sankyo <4568.t> bought about 64 percent last year, incurred losses in the last three quarters as it was hit by huge forex losses and a U.S. ban on some products.

The U.S. Food and Drug Administration in February said Ranbaxy had sold misbranded or adulterated drugs in the United States, the company's largest market, having earlier banned imports of more than 30 generic drugs.

Sobti said the firm had sent a "corrective action plan" to the FDA and a reply was expected later this month. Ranbaxy and Daiichi Sankyo have said they are working with the FDA. "Looking ahead, of course we expect the business to strengthen and we are looking at good opportunities in the second half of this year," said Sobti, who took over in May after Malvinder Singh of Ranbaxy's founding family resigned.

Global demand for generic drugs from Ranbaxy and rivals such as Dr Reddy's is booming as nations around the world battle rising healthcare costs.

But export-driven Indian companies are facing stiff pricing pressure as more drug makers jump into the generics market. Increased scrutiny of manufacturing standards by overseas regulators is also a worry as it could delay new launches.

BNP Paribas on Friday started coverage on the company with a reduce rating, saying FDA issues remained a major overhang on the stock and there were no plans to restructure the business significantly in the near future.

"We believe that Daiichi's expertise should help Ranbaxy resolve key regulatory challenges though the process is likely to be longer than street expectations," BNP Paribas analysts said in their report, released ahead of the Ranbaxy results.

FOREX BOOST

The New Delhi-based firm said consolidated net profit rose to 6.93 billion rupees ($144 million) in its fiscal second quarter ended June, from 229 million rupees reported a year earlier. Excluding foreign exchange gains, net profit was at 633 million, it said.

Net sales fell 2 percent to 17.95 billion rupees, mainly weighed down by 41 percent drop in U.S. sales.

A Reuters poll of 10 brokerages had estimated net profit of 3.07 billion rupees on sales of 16.49 billion.

Ranbaxy hedges part of its foreign currency earnings, but a rise in the rupee of nearly 6 percent against the dollar in the June quarter led to translation gains of 8.1 billion rupees on those positions, it said in a statement.

The currency rise also made servicing of foreign currency loans less costlier.

Ahead of the announcement, shares in Ranbaxy, which has a market value of $2.4 billion, ended 1.9 percent higher at 279.65 rupees in the main Mumbai market <.BSESN> that rose 1 percent.