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Quotes

Statement by Dinesh Thakur Regarding US Government’s Case Against Ranbaxy

Thanks to Suhail Kazi for directing me towards this statement

Today, the United States government brought to a conclusion an eight-year criminal and civil investigation of Ranbaxy Laboratories Limited, India’s largest generic drug company, and Ranbaxy, Inc., Ranbaxy Pharmaceuticals, Inc., Ranbaxy Laboratories, Inc., Ranbaxy USA, Inc., and Ohm Laboratories, Inc. (“Ranbaxy”). Ranbaxy has agreed to pay $500 million to resolve allegations of falsifying drug data and systemic manufacturing violations. Ranbaxy USA Inc. has pleaded guilty to multiple criminal violations. Dinesh Thakur served as the whistleblower in this case and is the former Ranbaxy Director and Global Head, Research Information & Portfolio Management.

 

Statement by Dinesh Thakur:

“I am relieved that the government’s investigation has concluded. I am thankful for the remarkable effort of United States Food and Drug Administration, Department of Justice, United States Attorney’s Office for the District of Maryland, USAID, and State Medicaid Fraud Control Units. Their work has been tireless and dedicated.

“Eight years ago, as the Director of Project & Information Management at Ranbaxy, I discovered that the company falsified drug data and systemically violated current good manufacturing practices and good laboratory practices. Ranbaxy’s management was notified of these widespread problems. When they failed to correct the problems, it left me with no choice but to alert healthcare authorities.

“I worked with U.S. regulatory authorities for two years to expose the fraud. In furtherance of this effort, I filed a lawsuit to hold Ranbaxy accountable. It took us eight years to help government authorities unravel a complicated trail of falsified records and dangerous manufacturing practices that threatened to compromise the quality and safety of Ranbaxy drugs. Along the way, the government barred the importation of Ranbaxy drugs, held the company accountable for its data fraud under FDA’s Application Integrity Policy, and required it to implement corrective measures to prevent the problems from recurring.

“As a senior pharmaceutical executive, I understand the importance of regulatory oversight in ensuring drug quality and safety. There are unique challenges in a global drug market, which is highly dependent on international manufacturing and distribution. In fact, approximately 78 percent of prescription drugs dispensed in the United States are generic, and a growing percentage of drugs – both generic and name brand – is manufactured overseas. This case highlights the need for effective regulation that applies to drugs sold in the United States, regardless where they are manufactured.
I would like to thank FDA’s Office of Criminal Investigation, United States Attorney’s Office for the District of Maryland, Department of Justice, USAID, and Andrew M. Beato, Bob Muse, and Rory Kelly of Stein Mitchell Muse & Cipollone LLP. I hope that our actions and this case have helped to improve the quality and safety of drugs in the United States and abroad.”

(Source:Dinesh Thakur)

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InvestorPresentations

Investor Presentation:HT Media Q4& FY2013

This post is in continuation of my Investor Presentation Series (see here)

[gview file=”https://alphaideas.in/wp-content/uploads/2013/05/HTML-Q4-FY13-Results-Presentation.pdf”]

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GuestPost ValuePick

Value Pick:A qualitative analysis of Tata Sponge

The guest post below is written by Krishnaraj Venkataraman, also known as Kimi.  Kimi has been an entrepreneur, and after selling his last business, now runs an investment partnerships that seeks to invest capital in undervalued securities in India.-Raoji

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Benjamin Graham begins his seminal book Security Analysis with a quote by Horace, “Many shall be restored that now are fallen, and many shall fall that now are in honor”. With Indian politicians rushing to demonstrate the latter; investors such as me search for the former. One such candidate is Tata Sponge.

The rush to sell

Tata Sponge is a small and relatively obscure firm run in an obscure place making an obscure product called Sponge Iron. Experts have prognosticated a poor outlook for steel industry – the end user of sponge iron; raw material inputs like iron ore & coal and power are either not available or shockingly priced; steel scrap, a sponge iron substitute is available cheaper. It could get worse, and the industry as such is reeling under heavy debt and low capacity utilization – the business equivalent of a gas chamber. Some will surely not survive, and many others will be hurt badly.

Shareholders are petrified and are crowding to exit; and in that they are indifferent to the value of the stock. Who would want to hold when business is sure to decline in the next quarter and foggy after that?

However, the very act of such unrestrained selling pushes price far below levels indicated by good sense.

Characteristics of the business of Tata Sponge

Tata Sponge sources iron ore fully from the mine of its parent (at a discount to NMDC rates) and imports a good part of its coal needs, eliminating uncertainty of availability. It also generates its own power eliminating another source of availability uncertainty. (Makes you wonder if India is the only large economy where availability of any economic resource is the first consideration, and its cost is a distant second)

Tata Sponge operates its plant at near full capacity; and runs it well. For instance it tries to continuously minimize the coal and power needed to make a unit of sponge iron. Further the quality of sponge iron produced is consistent in its Iron content and weight – important consideration for customers. Operating a plant at full capacity allows its fixed costs to be spread over the largest possible quantity minimizing per unit costs of sponge iron – not to mention time and costs saved from rampant start-ups and shut-downs.

The advantages above add to a few vital points in margins where the selling price is out of control. However the trump card lies in its profitable power business. Tata Sponge uses waste heat from the sponge iron making process to generate power, 2/3rds of which at full capacity is sold to the local state electricity board. The marginal cost involved is about 30 – 40% of the price at which power is sold to the grid. These profits are independent of the sponge iron prices allowing the bottom-line to escape to an extent the cyclical nature of the sponge iron business.

Further Tata Sponge has turned a profit every year in the past since 1992, even under worse economic conditions than exists today.  In other words, it is reasonable to assume that Tata Sponge operationally should do OK under trying circumstances and quite good otherwise.

There’s another vital difference that separates the best from the rest especially during periods of high interest rates, viz., capital structure. Tata Sponge is practically debt free and none of its peers seen is. A debt free capital structure allows all the operational excellence to flow through to the bottom-line. This has added qualitative advantages as well – no covenant breach, no loan restructuring and no short term measures taken to meet loan liabilities.

The outcome is an economic performance that is far superior to the average Indian company; a Return on Equity of about 30% averaged over the last 20 years!

Comparing value with price for Tata Sponge

After a reading of the above one may conclude that Tata Sponge is more valuable alive than dead but the market seems to think the exact opposite. Not only that, the market thinks that Tata Sponge is worth even much less than its value as a closed shop. There cannot be any other conclusion reached when we find that it is changing hands at 68% of its Book Value as of 11 May 2013. This, even as it uses as it uses only about 30% of its Book Value for its core business; 25% on advances for a coal block allocated to it and the remaining 45% as cash and liquid assets.

Clearly a case of fallen honor that should be restored!

Notes:

  1. Sources are Annual and Quarterly Reports and Industry numbers publicly available.
  2. Reasonable and practical assumptions have been made wherever necessary. Conclusions won’t be affected by minor changes in assumptions.
  3. We have long positions in the firm.
  4. Comments welcome at krishnarajv@gmail.com

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Video

The good life of Steel Tycoon Lakshmi Mittal

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Links

Linkfest:May 14,2013

Some stuff I am reading today morning:

Cognizant beats Infosys on employee numbers (BL)

Are capital protection-oriented funds meant for you? (Mint)

Why Orissa mining may not go the Goa way (ET)

Akshaya Tritiya leaves real estate firms idling by (BS)

Are company FDs as attractive as they look? (Mint)

Comprehensive list of child care plans in India (OneMint)

There is zero correlation between Fed printing and money supply (BehavioralMacro)

Why I am building a tavern at the office (WSJ)

Bill Gates gives details of his last visit with Steve Jobs (Verge)

How volatility affects our behavior (TRB)