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Aventis: The 'extraordinary' impact - Views on News from Equitymaster
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Aventis: The 'extraordinary' impact
Feb 17, 2011

Aventis has announced its CY10 results. The company has reported 10% YoY and 47% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 10% YoY during CY10 led by the growth in its core pharmaceutical business.
  • Operating margins shrink by 2.7% to 18.8% during the year due to rise in all expenses (as percentage of sales).
  • Bottomline grows by 47% YoY during the year on account of extraordinary income. On excluding the same, net profits decline by 1.5% YoY.
  • Board declares a total dividend of Rs 55 per share (including special dividend of Rs 28 per share) translating into a dividend yield of 3%.

Financial performance: A snapshot
(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net sales 2,567 3,072 19.7% 10,525 11,598 10.2%
Expenditure 2,208 2,658 20.4% ††8,266 ††9,421 14.0%
Operating profit (EBIDTA) 359 414 15.3% ††2,259 ††2,177 -3.6%
EBDITA margin (%) 14.0% 13.5%   21.5% 18.8%  
Other income ††57 136 138.6% ††330 ††389 17.9%
Interest †1 ††29   1 †29  
Depreciation ††44 ††54 22.7% ††173 ††197 13.9%
Profit before tax 371 467 25.9% ††2,415 ††2,340 -3.1%
Exceptional item - 757   †- ††757  
Tax 111 175 57.7% ††841 ††790 -6.1%
Profit after tax/(loss) 260 1,049 303.5% ††1,574 ††2,307 46.6%
Net profit margin (%) 10.1% 34.1%   15.0% 19.9%  
No. of shares (m)       †23.0 †23.0  
Diluted earnings per share (Rs)         †67.4  
Price to earnings ratio (x)*         †27.2  
* based on trailing 12 months earnings

What has driven performance in CY10?
  • Aventis clocked a 10% YoY growth in sales during CY10. This was led by the strong 18% YoY growth in sales from its core pharmaceutical business. While exports declined by 6.5% YoY, the encouraging sign was that this segment reported a growth of 15% YoY during the fourth quarter. Having said that, the performance of this business for the year was rather volatile.

    Revenue break-up
    (Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
    Domestic sales - Others †1,828 †2,240 22.5% 7,362 8,709 18.3%
    Domestic sales - 'Rabipur' - -   92 †-  
    Total domestic sales 1,828 2,240 22.5% †7,454 †8,709 16.8%
    Export sales 543 625 15.1% 2,290 2,141 -6.5%
    Total 2,371 2,865 20.8% †9,744 10,850 11.4%

  • Operating margins fell by 2.7% to 18.8% during the year. This was largely due to a rise in all expenses (as percentage of sales). Other expenditure rose from 19.1% of sales in CY09 to 20.7% in CY10. Raw material costs too increased from 45.8% of sales in CY09 to 46.5% of sales in CY10. As a result, operating profits declined by 4% YoY during the year.

  • Bottomline grew at a faster pace of 47% YoY largely due to the extraordinary income that the company received on sale of its stake in the Chiron Vaccines JV. On excluding the same, net profits fell by 1.5% YoY on account of the fall in operating profits and higher interest expenses.

What to expect?
At the current price of Rs 1,830, the stock is trading at a multiple of 20.8 times our estimated CY12 earnings. In the domestic market, Aventisí strong presence in the fast-growing lifestyle segment along with its focus on strategic brands is expected to be the key growth drivers going forward. Further, the company is incurring expenditure on two projects - the first is to deliver high quality low cost healthcare to the rural population and the second is to enter the OTC (over-the-counter) market. These initiatives will further bolster growth. However, we expect the pressure on margins to continue. Overall, we maintain our view on the stock.

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