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Sun Pharma’s operating profit margin crashed from 44 per cent in March 2014 quarter to 14 per cent in the recent March quarter. This was on three counts.
One, integration of Ranbaxy, whose operating profit margin is estimated to be less than a fifth of Sun Pharma, dragged the company’s consolidated profitability. Ranbaxy’s base business margin was estimated to be in the high single digit levels prior to the merger with Sun Pharma, while Sun enjoyed operating profit margin in excess of 40 per cent.
Second, Sun Pharma has made provision for certain one-time charges in the March quarter. These include professional charges and costs relating to harmonisation of policies of Ranbaxy. This led to an almost 10 percentage point drop in the company’s consolidated operating margin.
Third, rationalisation of Ranbaxy’s products across geographies – India, US and other emerging markets - by Sun Pharma also lead to a sharp decline in the consolidated entity’s revenue and profitability. Besides, there was weakness in the high-margin US market. This was due to price erosion driven by channel consolidation and supply issues arising from the US drug regulator’s scrutiny at Sun’s Halol plant (Gujarat).
Though the pressure on operating profit margin due to the integration process may continue in the near term, synergies from Ranbaxy’s product portfolio, improved field force productivity and presence in emerging markets should hold Sun Pharma in good stead over the next few years.
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