Aventis Pharma: Are valuations attractive? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Aventis Pharma: Are valuations attractive?

Feb 20, 2002

Aventis Pharma (erstwhile Hoechst Marion) seems to be taking the right steps to inculcate much wanted growth in the company. While operating margins are on a steady rise, product portfolio of the company is increasingly becoming enviable. The company is slowly and steadily shifting its focus towards high margin specialised therapeutic segments. The DPCO order unfortunately seems to be acting as a dampener for the company's valuations. The operating margins of the company have been on an upward spiral thanks to the restructuring benefits and new product introductions. Aventis is slowly transforming from a company concentrated mainly on anti-infectives and pain management to a company specialising in life style therapeutic segments, where the margins are comparatively higher.

The company is also expected to benefit from global bulk outsourcing by its parent company. The company’s Ankleshwar unit is already used by the parent company for this purpose as a sourcing base for a couple of bulk drugs (Ramipril and Articaine). It is expected that outsourcing by the parent company from HMR’s Goa plant would kick off shortly. This would be for Daonil (a leading product in anti-diabetic segment) from India for its European operations.

However, going forward, we expect the company to show spikes in the margins based on product introductions. Further, though the company's product enjoys strong brand recall, it faces stiff competition from other domestic brands and generic products. For example, incase of Amaryl (anti-diabetic), there are already several generic competing products, which are priced below Amaryl. In a country like India where markets are absolutely price sensitive, premium pricing is difficult to continue. Thus, if the margins are to remain buoyant, product introductions will need to be strong. Going by the past experience the company has always benefited from fast product launches by its parent company.

The effect of the proposed change in the DPCO is expected to be mixed. Some of its top selling drugs, covering around 10% of the total sales of the company are expected to go out of price control. However, Daonil, the company’s top selling anti-diabetic product is expected to come under DPCO coverage. Daonil contributes around 11% of the total sales of the company. Though the DPCO coverage of the company still remains high at around 35%, it is expected to drop sharply going forward inline with the change in the revenue structure.

At the current market price of Rs 361, the stock trades at a P/E of 10.4x its FY02 earnings. The slide in the price of the stock seems to be on account of successive disappointments on non-relaxation of DPCO in favour of the company. However, considering the growth prospects and comparative valuations with the peers, the stock looks attractive at the current price.

Comparative Valuations
Particulars CMP P/E (x) P/E (x) Mkt. Cap Mkt.Cap/sales
  (Rs.) FY2002 FY2003 (Rs. Mn.) (x)
Aventis Pharma 361 10.4 9.7 8,303 1.3
GSK India 349 17.6 16.8 26,175 2.3
Pfizer Ltd 462 23.1 20.1 10,626 2.6
Novartis 255 13.9 11.8 8,135 1.7

Equitymaster requests your view! Post a comment on "Aventis Pharma: Are valuations attractive?". Click here!


More Views on News

SANOFI INDIA 2019-20 Annual Report Analysis (Annual Result Update)

Oct 25, 2021 | Updated on Oct 25, 2021

Here's an analysis of the annual report of SANOFI INDIA for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of SANOFI INDIA. Also includes updates on the valuation of SANOFI INDIA.

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

Demerger of Financial & Pharma Businesses puts Piramal Enterprises in Limelight (Views On News)

Oct 8, 2021

The company's shareholders will be issued 4 shares in the demerged entity for every 1 held in Piramal Enterprises.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 12:20 PM


  • Track your investment in SANOFI INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks