Financial Project reports on Dhanvarsha Fincap Pvt.Ltd

Description
Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Usually, a project financing structure involves a number of equity investors, known as 'sponsors', as well as a 'syndicate' of banks or other lending institutions that provide loans to the operation.

Acknowledgement
First and foremost I would like to acknowledge my instituteAhmedabad Education Society Post Graduate In Business Management (AESPGIBM)-for providing me an opportunity to work on “Equity Research”. A study of such a subject would not have been possible without the help of a large number of people. To enlist them all would be disproportionate with relation to this project. However there are a few people who I would like to Thank for being an integral part of my study process. I would like to thank Dr. A.H.Kalro for his guidance and inspiration. For my practical work, I would like to express my gratitude to Prof Taral Pathak and Dr. Mayank Joshipura for supporting me at each and every phase. I would also like to thank my guide at Dhanvarsha Fincap pvt. Ltd., Mr. Nilesh kotak and Mr. Bankim Thakkar for devoting their precious time and guiding me. On a personal note I would like to thank to all my friends who helped me in whatever possible ways during project and in completion of my report and also encouraged me during difficult times to carry on with my work. Last but not the least I would like to thank my Family for standing by me. I would like to thank Almighty for providing me the confidence to face and overcome the hurdles. I wish to express my gratitude to all of them. Pankti Shah

Executive Summary
“BUY” Key Investment Arguments

CMP (Rs.) 360 Target(Rs.) 479 Stock return 33%

Approval For Patents from USFDA
? Pravastarin Sodium 80 mg in Canada for whose market is CAD 729 mn and in USA having market of $209mn annually. Atorvastin drug in Norway Bioequivalent having market of $2.79bn. Fexofenadine hydrochloride tablets whose annual market is of $931 mn. Tamsulosin HCl capsules having market of $1.1bn. Amlodipine besylate tablets 2.5 mg, 5 mg, 10 mg base.

? ?

Nifty Sensex

4512.15 15311.22

Tentative approvals for,
? ?

Key Stock Data BSE id 500359 NSE id Ranbaxy No of Shares 375 (in mn) Market Cap (Rs mn) Avg 6 mnt vol(in mn) 13416 7 736.69

?

Mergers and Acquisitions
Ranbaxy has undergone nine mergers and acquisitions last year in different countries like Terapia in Romania(South Africa), Ethimed in Belgium, Allen in Italy, Be-Tabs Pharmaceuticals in South Africa which is valued Rs 500 mn and it makes Ranbaxy fifth largest generic, Mundogen in Spain, Zenotech laboratories, Biochemicals & Industries and Cardinal Drugs in India. It acquired Senetek PLC proprietary technology to gain access to niche technology, disposable autoinjector technology which is for selfadministration of parenteral drugs used in emergency treatment of for anaphylactic shocks. Drug Discovery & Clinical Development with GlaxoSmithKline is its important collaboration. Cipro OD Technology is Out Licensed to Bayer and Statin to PPD, USA.

Stock Performance 52 Intraday Week Highs 356.40 Lows 344.60 445.00 305.50

Share Holding Pattern Foreign Holding 21.86% Govt./Financial Institutions Corporate (excluding above institutes) Directors and their relatives Free Floating 20.18% 2.16%

Expanded its presence in Dermatology Its wholly owned subsidiary Ranbaxy Laboratories Inc. acquired from Bristol- Myers. It used it for making drugs used in treatment of Aene, Dermatitis, Psoriasis, Fungal infection and Seabies. It is estimated at $ 10 bn. and has experienced growth of 10% annually. Valuation Looks Positive
It is expected that Ranbaxy will post a CAGR of 17% in Revenues between FY07-11 and 16% in earnings for the same period. At the CMP of Rs 360, the stock trades at PER of 38.39 which is 24.81x and 22.36 FY08 and FY09 respectively.

34.86% 20.95%

The target price achieved by DCF is Rs 475.SO it is suggested to “BUY”

Index
Chapter 1 Introduction
1.1 1.2 1.3 1.4 1.5 About the work place Objectives Operating Methods Fundamental Analysis 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 1 st, 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 tieups 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-thecounter (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 valueadded 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 BioGenerics. ? 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 competition is very tough and profit margins are also declining.
Company Name Equity Rs.Cr. B.V. Rs. 41.70 48.70 63.00 87.40 Sales NP Rs.Cr. Rs.Cr. (for previous year) 3,572.14 1,604.24 4,117.22 1,120.48 660.82 190.15 378.88 257.52 628.93 NP Var% Div% CPS Rs. 9.80 EPS Rs. 8.50

Cipla

155.45

7.00 16.00 119.00 8.00 39.00

75.00

Dr Reddy's Labs. 83.96 Nicholas Piramal 41.80 Ranbaxy Labs. Wockhardt Sun pharma. 186.43 54.72 98.04

260.40 3,957.56

1,176.86 533.00

78.00 70.10

175.00 12.00 8.50 170.00 11.40 9.00 100.00 26.00 22.80 135.00 34.40 32.10

134.80 2,243.18

4.5. Peer Comparison of top companies in this sector
Sector: Pharma India Bulk Drugs and Formulation

Company Volume 52 Week 52 Name High Week Low Cipla Dr Reddy's Labs. Nicholas Piramal Ranbaxy Labs. 780.38 275.00 284.42 840.00

Price BSE Price NSEMkt.Cap. P/C P/E Price Sales NP Rs.Cr. Ratio Ratio Vs. Rs.Cr. Rs.Cr. (for last BV quarter) 204.00 650.00 16011.35 20.90 24.20 4.94 10916.48 8.30 9.30 2.50 938.47

NP Var %

203.00 206.00 599.00 650.00

125.73 -34.00

1,104.75 268.90 -

226.34 314.00 763.69 445.00 450.00

177.00 295.00 306.00 356.00 324.00 392.00

295.00 356.00 394.00

6167.59

24.70 34.70 6.06

386.56 988.17 292.70 588.51

26.92

-32.00

13275.68 31.10 39.60 5.65 4292.78 15.10 17.20 4.49

108.46 116.00 52.00 -15.00

Wockhard 22.60 t Sun Pharma.

214.53 1,196.00 705.00 1,041.00 1,043.00 20410.95 30.20 32.40 7.72

155.67 34.00

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 Overall Market Size Ranbaxy Market Share Ranbaxy Sales Total No. of Molecules Ranbaxy + Local tie ups About 2,500 persons 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), Coamoxyclav (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

Lead Molecules

Presence in Therapeutic Segments

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 fastgrowing 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, Gastrointestinals, 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 Antiinfective 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-tofile, 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 Glaxo SmithKline 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 a turnover 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 Competition Council 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 growth in 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 strategic stake , would help the Company to gain access 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. This strategic stake would enable the Company to gain access to low 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 researchbased 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-------> Particulars 2006.00 Rs in Mn 2007(E) Rs in Mn 2008(E) Rs in Mn 2009(E) Rs in Mn 2010(E) Rs in Mn 2011(E) Rs in Mn

Total Assets
A Current Assets Cash and Bank Balances Sundry Debtors Inventory Misc. Current Asset Loan & Advances B Fixed Assets Plan and Machinery Less Depritiation Net Asset WIP C Investments D Miscellaneous Assets E Intangible Assets Asset Less Depriciation

69248.49
25089.94 711.51 10137.45 9549.12 780.85 3911.01 16751.16 19685.66 5953.29 13732.37 3018.79 26799.45 0.00 607.94 1650.08 1042.14

75512.06
29760.19 945.44 10946.13 11522.33 1161.86 5184.43 18212.25 20555.06 6539.98 14015.07 4197.18 26799.45 0.00 740.17 1864.83 1124.66

84767.46
35414.62 1125.07 13025.89 13711.58 1382.61 6169.47 21672.58 24460.52 7782.58 16677.94 4994.64 26799.45

95781.38 106128.67 118028.06
42143.40 1338.84 15500.81 16316.78 1645.31 7341.67 25790.37 29108.02 9261.27 19846.75 5943.62 26799.45 48464.91 1539.66 17825.93 18764.30 1892.10 8442.92 29658.92 33474.22 10650.46 22823.76 6835.17 26799.45 55734.65 1770.61 20499.82 21578.94 2175.92 9709.36 34107.76 38495.35 12248.03 26247.32 7860.44 26799.45

880.81 2219.15 1338.34

1048.16 2640.79 1592.62

1205.39 3036.90 1831.52

1386.19 3492.44 2106.25

Total Liabilities
F Current Liabilities G Provisions H Deferred Liabilities

45748.36
7233.30 5226.68 33288.38

35623.62
9590.16 6069.50 19963.97

42392.11
11412.29 7222.70 23757.12

43955.14 51522.13
13580.62 8595.01 21779.50 15617.72 9884.26 26020.15

60224.17
17960.37 11366.90 30896.89

Net Worth
I Share Capital Prefernce Capital Equity Capital(plus Deffered Capital,if any) Application money J Reserves and Surplus Share Premium Reserve Capital Reserve General Reserves Sinking Funds and Redemption Reserves Investment allowances Reserve/Statutory Development Rebate Reserve Free Reserve & Surplus Foreign Project Reserve Employee Stock Option Amagamation reserve K Balance sheet Difference Total

23500.13
1872.22 0.00

24936.32
1872.22 0.00

27120.62
1872.22

36897.96 41218.71
1917.53 1917.53

46729.58
1917.53

1863.43 8.79 21627.91 5599.60 5.41 15351.24 0.00 0.00 0.00 0.00 471.18 62.72 94.01 43.75

1863.43 8.79 23064.10 5599.60 5.41 15801.24 0.00 0.00 0.00 0.00 1457.37 62.72 94.01 43.75 14952.13 75512.06

1863.43 8.79 25248.40 5599.60 5.41 16251.24

1908.74 8.79 34980.43 12045.76 5.41 16701.24 0.00 0.00 0.00 0.00 6027.54 62.72 94.01 43.75 14928.29 95781.38

1908.74 8.79 39301.18 12045.76 5.41 17151.24 0.00 0.00 0.00 0.00 9898.29 62.72 94.01 43.75 13387.84 106128.67

1908.74 8.79 44812.05 12045.76 5.41 17601.24 0.00 0.00 0.00 0.00 14959.16 62.72 94.01 43.75 11074.31 118028.06

0.00 0.00 0.00 3191.67 62.72 94.01 43.75 15254.73 84767.46

6.2. Profit and Loss Account
Year Particulars 2006.00 Rs in mn 13411.42 27175.65 1348.28 538.89 21631.76 16323.82 3310.85 1997.09 8582.78 3863.35 5699.79 584.44 4632.29 5115.35 1067.50 4047.85 381.91 4429.76 478.49 3951.27 560.34 22.95 4543.56 3613.38 3168.94 0.00 444.44 0.00 450.00 471.18 921.18 2007(E) Rs in mn 15541.88 31560.00 1597.06 1882.81 25636.55 19281.89 4036.29 2318.37 10545.67 5059.40 6146.00 402.69 5209.48 5743.31 936.52 4806.79 822.59 5629.38 579.81 5049.57 471.18 0.00 5520.75 3613.38 3168.94 444.44 0.00 450.00 1457.37 1907.37 2008(E) Rs in mn 18494.83 37556.40 1900.50 2240.54 30507.50 22945.45 4803.19 2758.86 12549.34 6020.69 7313.74 479.20 5987.98 6834.54 1325.76 5508.78 978.88 6487.66 689.97 5797.68 1457.37 0.00 7255.05 3613.38 3168.94 444.44 0.00 450.00 3191.67 3641.67 2009(E) Rs in mn 22008.85 44692.11 2261.60 2666.24 36303.92 27305.08 5715.79 3283.05 14933.72 7164.62 8703.35 570.25 7125.69 8133.10 1577.65 6555.45 1164.86 7720.31 821.07 6899.24 3191.67 0.00 10090.92 3613.38 3168.94 444.44 0.00 450.00 6027.54 6477.54 2010(E) Rs in mn 25310.18 51395.93 2600.84 3066.18 41749.51 31400.84 6573.16 3775.50 17173.77 8239.32 10008.85 655.78 8024.91 9353.07 1814.30 7538.77 1339.59 8878.36 944.23 7934.13 6027.54 0.00 13961.67 3613.38 3168.94 444.44 0.00 450.00 9898.29 10348.29 2011(E) Rs in mn

Net Sales
Sales(Or Operating Income) Export Sales Less Trade Discount Other Income Cost of goods sold Material Consumed Wages and Salaries Direct Mfg. Expenses General Expenses Research & Development Expenses Gross Profit Interest EBIT Pre Dedpriciation Operating Profit Depriciation, Amortization,Impariment Operating Profit Non-Operating Surplus(+) or Deficit(-) Pre-Tax Profit Provision For Taxation Net Profit Balance as per last balance sheet Transfer from foreign Project reserve Balance Available for appropriation Profit Distributed Pref. Dividend Equity Dividend Proposed dividend Tax on Dividend Transfer to Foreign Project Reserve General Reserve Surplus Carry Forward Profit Retained

39777.68 47387.62

56391.27 67105.61 77171.45

88747.17
29106.71 59105.32 2990.96 3526.10 48011.93 36110.97 7559.14 4341.83 19749.84 9475.21 11510.18 754.15 9228.65 10756.03 2086.45 8669.58 1540.53 10210.11 1085.86 9124.25 9898.29 0.00 19022.54 3613.38 3168.94 444.44 0.00 450.00 14959.16 15409.16

6.3. Percentage Change year to year in P & L Account
Year Particulars 200506 % change Y-o-Y 2006-07 2007-08 2008-09 2009-10 2010-11

Net Sales
Sales(Or Operating Income) Export Sales Less Trade Discount Other Income Cost of goods sold Material Consumed Wages and Salaries Direct Mfg. Expenses General Expenses Research & Development Expenses Gross Profit Interest EBIT Pre Dedpriciation Operating Profit Depriciation, Amortization,Impariment Operating Profit Non-Operating Surplus(+) or Deficit(-) Pre-Tax Profit Provision For Taxation Net Profit Balance as per last balance sheet Transfer from foreign Project reserve Balance Available for appropriation Profit Distributed Pref. Dividend Equity Dividend Proposed dividend Tax on Dividend Transfer to Surplus Carry Forward Profit Retained

11.43
11.80 16.28 4.90 -66.66 9.15 8.47 9.76 13.93 -1.82 -20.57 150.65 121.29 267.45 154.51 5.35 306.19 -62.45 119.99 -548.07 86.34 -75.32 -25.12 2.57 0.07 240.34 -100.00 0.07 -15.91 13.68

19.13
15.89 16.13 18.45 249.39 18.51 18.12 21.91 16.09 22.87 30.96 7.83 -31.10 12.46 12.28 -12.27 18.75 115.39 27.08 21.17 27.80 -15.91 -100.00 21.75 0.00 0.00 0.00 209.30 107.06

19.00
19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 14.94 19.00 41.56 14.60 19.00 15.25 19.00 14.82 209.30 31.41 0.00 0.00 0.00 119.00 90.93

19.00
19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 119.00 39.09 0.00 0.00 0.00 88.85 77.87

15.00
15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 12.62 15.00 15.00 15.00 15.00 15.00 15.00 15.00 88.85 38.36 0.00 0.00 0.00 64.22 59.76

15.00
15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 64.22 36.25 0.00 0.00 0.00 51.13 48.91

6.4. Discounted Cash Flow Statement
DCF Consolidated Year Particular Free Cash Flow Calculation EBIT Plus: Depreciation Plus: Amortization Plus Share of profits from associates EBITDA Less: Capex Tax rate Effective tax rate EBITDA Less Capex Less: Taxes on EBIT Add: Taxes on Interst Less: Changes in Working Capital Unlevered Free Cash Flow 4632 5115 0 9748 1461 33% 8287 -1529 193 -2486 4465 5209 5743 0 10953 3460 33% 7492 -1719 133 -1210 4696 12823 4118 33% 8705 -1976 158 -1440 5447 15259 4365 33% 10894 -2351 188 -1714 7017 17378 4627 33% 12751 -2648 216 -1971 8349 19985 4904 33% 15080 -3045 249 -2266 10017 5988 6835 7126 8133 8025 9353 9229 10756 2006A Rs m 2007E Rs m 2008E Rs m 2009E Rs m 2010E Rs m 2011E Rs m

WACC calculations Risk Free rate (10 yr bond) Risk Premium Beta Cost of Equity WACC Market cap Debt Av cost of debt Terminal growth rate

7.5% 5.0% 0.732 11.2% 11.2% 134167 12311.60 2.59 7%

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

6.6. Charts
Net Sales
Net Sales
100000.00 90000.00 80000.00 70000.00 60000.00 Rs in Mn 50000.00 40000.00 30000.00 20000.00 10000.00 0.00 4 5 6 7 Year(200X) 8 9 10 11 Net Sales

Net Profit

Net Profit
10000.00 Rs in Mn 8000.00 6000.00 4000.00 2000.00 0.00 4 5 6 7 8 9 10 11 Year(200X) Net Profit

6.7. Ratios Ratios Valuation Ratios
EPS (rs.) P/E P/BV EV/Sales EV/EBITDA Debt/Equity BV/Share

2006 10.6 38.39 6.45 4.52 31.59 1.95 63.05

2007(E) 13.55 26.57 5.14 3.79 29.29 1.43 69.92

2008(E) 15.56 24.81 5.11 3.19 25.61 1.56 75.41 19 19 14.82 9.76 13 10.28 0.38

2009(E) 18.51 22.36 4.09 2.68 20.69 1.19 101.19 19 19 19 9.76 13 10.28 0.38

2010(E) 21.29 20.85 3.95 2.33 17.99 1.25 112.36 15 15 15 9.76 13 10.28 0.38

2011(E) 24.48 19.40 3.75 2.02 15.64 1.29 126.67 15 15 15 9.76 13 10.28 0.38

Growth Ratios
Revenue EDITDA Earning

11.43 19.13 150.65 7.83 86.34 27.80 10.18 14 9.93 0.42 10.14 12 10.28 0.38

Efficiency Ratio (%)
Operating Profit Margin EBITDA Margin Net Profit Margin Fixed Asset Turn over

Profitability Ratios
ROE (%) ROCE (%)

0.17 2.12

0.20 2.71

0.21 3.11

0.186 3.61

0.19 4.16

0.195 4.78

7 Technical Analysis

Technical Analysis
500 Value in Rs 400 300 200 100 0 30- 30- 30- 30- 30- 30- 30- 30- 30- 28- 30- 30- 30- 305- 6- 7- 8- 9- 10- 11- 12- 1- 2- 3- 4- 5- 606 06 06 06 06 06 06 06 07 07 07 07 07 07 Dates Series1

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 200 days average Support Resistance Rs 360 Rs 383 Rs 305 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.



doc_137131531.doc