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Aventis: 'Rabipur' hampers topline - Views on News from Equitymaster

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Aventis: 'Rabipur' hampers topline

Feb 25, 2010

Performance summary
  • Net sales grow by a mere 2% YoY during CY09 largely due to the absence of sales from the vaccine ‘Rabipur’, which were present in CY08.
  • Operating margins fall by 1.5% to 21.5% during the year due to higher staff costs (as percentage of sales).
  • Bottomline declines by 5% YoY during the year and mirrors the fall in operating profits.
  • Board recommends a total dividend of Rs 20 per equity share (dividend yield of 1.2%).

Financial performance: A snapshot
(Rs m) 4QCY08 4QCY09 Change CY08 CY09 Change
Net sales 2,864 2,567 -10.4% 10,365 10,525 1.5%
Expenditure 2,233 2,208 -1.1% 7,978 8,266 3.6%
Operating profit (EBIDTA) 631 359 -43.1% 2,387 2,259 -5.4%
EBDITA margin (%) 22.0% 14.0%   23.0% 21.5%  
Other income 123 57 -53.7% 394 330 -16.2%
Interest 2 1 -50.0% 3 1 -66.7%
Depreciation 44 44 0.0% 182 173 -4.9%
Profit before tax 708 371 -47.6% 2,596 2,415 -7.0%
Tax 255 111 -56.5% 934 841 -10.0%
Profit after tax/(loss) 453 260 -42.6% 1,662 1,574 -5.3%
Net profit margin (%) 15.8% 10.1%   16.0% 15.0%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)         68.4  
Price to earnings ratio (x)         23.5  

What has driven performance in CY09?
  • Aventis clocked a mere 2% YoY growth in sales during CY09. Having said that, this was largely due to the absence of sales from the vaccine ‘Rabipur’ this year, which were present in CY08. Thus, on excluding the same, sales registered a decent 12% YoY growth largely led by the domestic (up 12% YoY) business. As far as ‘Rabipur’ is concerned, Aventis had formed a JV with Novartis Vaccines called Chiron, in which the former had 49% stake for the distribution of ‘Rabipur’ in India. Since Novartis Vaccines chose not to renew the contract, there were no sales from ‘Rabipur’ this year and will not be reflected in the future as well. Exports for the year were subdued having grown by 9% YoY. This was largely due the sharp 21% YoY decline in exports during the fourth quarter. It must be noted that for the nine month period exports had grown at a robust pace of 24% YoY.

    Revenue break-up
    (Rs m) 4QCY08 4QCY09 Change CY08 CY09 Change
    Domestic sales - Others 1,716 1,828 6.5% 6,552 7,362 12.4%
    Domestic sales - 'Rabipur' 295 -   1,179 92 -92.2%
    Total domestic sales 2,011 1,828 -9.1% 7,731 7,454 -3.6%
    Export sales 688 543 -21.1% 2,102 2,290 8.9%
    Total 2,699 2,371 -12.2% 9,833 9,744 -0.9%

  • Operating margins fell by 1.5% to 21.5% during the year. This was largely due to a rise in staff costs from 11.5% in CY08 to 13.7% in CY09 (as percentage of sales). Having said that, the fourth quarter witnessed more damage as operating margins plunged by 8% to 14% led by a rise in all cost heads (as percentage of sales).

  • Bottomline declined by 5% YoY during the year and reflected the fall in operating profits. While other income reduced and put more pressure, lower tax expenses arrested any further fall in profits.

What to expect?
At the current price of Rs 1,610, the stock is trading at a multiple of 17.9 times our estimated CY11 earnings. In the domestic market, Aventis’ strong presence in the fast-growing lifestyle segmentalong with its focus on strategic brands are expected to be the key growth drivers going forward. However, we expect the pressure on margins to continue. Since the company’s performance both on the topline and the margin front have been below our estimates, we shall have to downgrade our numbers for the full year. Overall, while we remain positive on the growth prospects of the company, current valuations do not leave much on the table for investors.

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