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Ranbaxy + Biocon Result Analysis

January 19, 2008

Ranbaxy:
Following a steady 4Q (sales up 7%; EBIDTA margins up 65bps), it ended up with 9% and 20% YoY growth in sales
& operating PAT respectively. This came about despite multiple hurdles – viz. a stronger rupee, regulatory issues in Romania & growing competition – thus reflecting the benefits of Ranbaxy’s restructuring & improved business model.

As Ranbaxy’s strong guidance for CY08 indicates, it
looks well set to continue the recovery process that commenced last year.Ranbaxy guided to 18-20% growth in US$ sales, 17.5-18% EBIDTA margins & 20-25% growth in reported PAT.

Biocon Ltd:
Biocon’s revenues declined 4% YoY in 3Q, primarily due to the sale of its enzymes business. However, continuing business growth was also tepid at 2%. Research services degrew 24% YoY; while this is due to a quarterly skew in licensing fees, it puts the high growth in 1H in the right
context. Biopharma continued to disappoint growing 11% YoY & declining 13% QoQ, as it felt the pinch of a rising rupee and the lack of product launches.

EBIDTA margins declined 665bps despite the sale of the low margin enzymes business, hit by rupee appreciation and increase in fixed costs. Although gross margins improved by 303bps YoY (on lower outsourcing), it declined by 291bps QoQ due to rupee appreciation.

Nicholas Piramal:
A 13% YoY growth in sales translated into a 43% YoY growth in net profit on the back of a 237bps expansion in EBIDTA margins – excluding NCE R&D spend from both periods. NPIL appears well on course to achieving its FY08 guidance on EBIDTA margins (18.7%) and EPS (Rs17.5) despite a shortfall on the revenues front (set to end with 16% growth vs. 20% guidance).

3Q results were strong, with margin improvement being much higher than anticipated. We expect this trend to continue on the back of aggressive restructuring in UK operations and help completely offset a shortfall in FY08 revenues.

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