Ranbaxy Profit Rises Sharply Amid Foreign-Exchange Gains

The India-based company also retained its financial guidance for the year, even as it said it expects to meet soon with U.S. Food and Drug Administration officials to move forward on the resolution of pending regulatory issues with the agency.

Consolidated profit for the quarter ended June 30 rose to 6.93 billion rupees ($144 million) from 229 million rupees a year earlier, helped by foreign-exchange gains of 8.07 billion rupees, Ranbaxy said.

Ranbaxy, a unit of Daiichi Sankyo Co. of Japan, had reported losses in the past three sequential quarters, hit by unfavorable currency bets, regulatory problems in the U.S. -- its largest market -- and the global economic slowdown.

The company is vulnerable to currency volatility because of the high level of hedged positions on foreign-currency billings and the large size of its overseas loans.

It booked losses when the rupee fell against the U.S. dollar earlier this year. However, with the rupee rising about 6% against the dollar during the quarter, the company said it has substantially reversed the marked-to-market losses booked in the January-March quarter. Ranbaxy had outstanding foreign-exchange derivative contracts of $1.2 billion at the end of June.

Excluding foreign-exchange gains, profit after tax was 633 million rupees in the second quarter. Consolidated sales fell 1.9% to 17.95 billion rupees from a year earlier, the company said.

"Our focus remains on profits and cash flow, especially given the global recession," Chief Executive and Managing Director Atul Sobti said at a news conference. He said Ranbaxy won't as yet make changes to its forecast of a loss of about eight billion rupees on sales of 70 billion rupees for 2009.

Mr. Sobti said a higher revenue contribution from emerging markets and good cost controls helped the company offset pressures from higher expenditure on regulatory compliance and other costs.

The company's results for the quarter included a severance payment of 480 million rupees to Malvinder Singh, who stepped down as chairman, CEO and managing director in May. Daiichi Sankyo representative Tsutomu Une took over as Ranbaxy chairman.

The management shuffle, which effectively removed members of the company's founding family, was seen as a step by Daiichi Sankyo to strengthen its control and accelerate the revival of operations by resolving FDA issues.

Ranbaxy's declining sales in the U.S. -- which slid 41% to 3.03 billion rupees in the quarter -- is a fallout of last September's ban on the import of more than 30 generic drugs into the U.S. because of manufacturing violations at the company's Dewas and Paonta Sahib plants.

"The cooperation with the FDA is continuing," Mr. Sobti said. He said the company will soon write to FDA officials, inviting them to re-inspect the Dewas plant. He also expects to hear from the FDA this month on its "corrective action plan" for the Paonta Sahib plant.