Ranbaxy surged on Tuesday on renewed buying support from institutions, especially LIC.

The scrip of India's biggest pharmaceutical company in terms of market capitalisation was the biggest gainer among BSE Sensex constituents, up by 1.11% at Rs 624.20 in early-afternoon trades, recovering from its low of Rs 609.25 but off its high of Rs 624.35. A huge volume of over one lakh shares was recorded on the counter by 13:15 IST. In five sessions, the scrip rose by 7.36% from Rs 581.50 on 19 March 2003. Earlier, between 6 and 19 March 2003, the stock shed 16% to Rs 583.40 from Rs 692.80.

As per market buzz, Life Insurance Corporation of India has been an active buyer of the stock since the last few sessions following its attractive valuation. Meanwhile, there were rumours that the company will benefit from the demand for anti-infectives from Iraq. When the ongoing US-Iraq war ends, America is expected to grant substantial aid to Baghdad. The drugs may be routed to Iraq via the US. Ranbaxy has a strong marketing foothold in the US.

Meanwhile, pharma stocks have been adversely hit of late, on the reckoning that domestic sales will be adversely affected due to the introduction of uniform Value Added Tax at the rate of 12.5% from 1 April 2003, replacing the sales tax levied by various state governments. Due to this, many druggists have cut down on their existing inventories and are postponing fresh purchases till April 2003, when there will be more clarity on the VAT front.

The current rate of sales tax is around 7-8% on an average, across the country. However, the uniform VAT is fixed at 12.5%. In addition, considering trade discounts and commissions, the effective rate is likely to be around 15.5%. Further, the pharma industry is also worried about the treatment of stock-in-trade of goods at the wholesaler and the retailer end.

Pharma analysts said the introduction of VAT will force chemists & druggists to issue receipts for every sale of a drug. Currently, they issue a receipt only when demanded, adding that in the process, a sale transaction is concluded that does not result in payment of sales tax.

Pharma companies as well as druggists strongly believe that there is no clarity on the modalities of the VAT. As a result, the implementation of VAT may take a longer timeframe. Analysts also feel that the government may not implement VAT from 1 April 2003, as scheduled. All this is likely to affect the domestic sales of pharmaceutical firms for the quarter ending March 2003.

Analysts said that despite the strong fundamentals, Ranbaxy faces challenges in the domestic market due to its significant exposure to stagnating therapy areas, limited flexibility in pricing and increasing competition. Apart from that the delay in product approvals has kept the company's stock subdued. Till the company does not come out with new molecule launch in the export markets, there will be no significant change in the company's earnings.

For the full year, on a consolidated basis, Ranbaxy registered a 130.7% rise in net profit to Rs 608.4 crore (Rs 6.08 billion) on net sales growth of 40.3% to Rs 3,823.4 crore (Rs 38.23 billion).

BSE code: 500357