Sanofi India: Will this performance continue? - Views on News from Equitymaster

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Sanofi India: Will this performance continue?

Feb 28, 2013

Sanofi India has announced its 4QCY12 results. The company has reported 19% YoY growth in sales and a 24% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 19% YoY during 4QCY12 led by growth in its core pharmaceuticals business. Other operating income grows by 24% YoY.
  • Operating margins improve by 1.2% to 18.2% during the quarter leading to the 27% YoY growth in operating profits.
  • Bottomline growth is lower at 24% YoY on account of a substantial increase in depreciation charges.

Financial Performance : A snapshot
(Rs m) 4QCY11 4QFY12 Change CY11 CY12 Change
Net sales 3,379 4,007 18.6% 12,297 14,939 21.5%
Other operating income 178 221 24.2% 716 792 10.6%
Expenditure 2,984 3,500 17.3% 10,536 12,613 19.7%
Operating profit (EBDITA) 573 728 27.1% 2,477 3,118 25.9%
EBDITA margin (%) 17.0% 18.2%   20.1% 20.9%  
Other income 109 161 47.7% 678 412 -39.2%
Interest (net) 4 3   4 14  
Depreciation 142 223 57.0% 311 899 189.1%
Profit before tax 536 663 23.7% 2,840 2,617 -7.9%
Tax 175 215 22.9% 928 850 -8.4%
Profit after tax/(loss) 361 448 24.1% 1,912 1,767 -7.6%
Net profit margin (%) 16.0% 16.7%   15.5% 11.8%  
No. of shares (m)         23  
Diluted earnings per share (Rs)         76.7  
Price to earnings ratio (x)*         30.1  
*based on trailing 12 months earnings

What has driven performance in 4QCY12?
  • Aventis clocked net sales growth of 18.6% YoY during 4QCY12 and 24% YoY growth in the operating income.

  • Operating margins improved by 1.2% YoY to 18.2% during the quarter. Thus, operating profits grew by 27% YoY during the quarter. Excluding the impact of other operating income, EBITDA margins improved by 1% for the said period.

  • Net profits grew by 24% for 4QCY12. The company has changed its accounting policy pertaining to amortization of goodwill since September 2012. As a result of this change, the depreciation costs have gone up. Adjusting for this impact, PAT for the current quarter and for CY12, is lower by Rs 21 m and Rs 99 m respectively. Thus adjusted PAT growth would have been around 30% for the quarter.

  • For the full year, while revenues grew by 21.5% YoY, net profits fell by 8% YoY on account of lower other income and surge in depreciation charges. Other income declined because of lower interest income as the company had invested in the acquisition of brands and technical know-how from Universal Medicare Private Ltd.

What to expect?
At the current price of Rs 2,310, the stock is trading at a price to earnings multiple of 18.8 times our estimated CY14 earnings. MNC pharma players including Sanofi India will be impacted the most by the much awaited price control policy, given that they are entirely focused on the domestic market as compared to their domestic counterparts. This will impact the overall growth on both the topline and the margins front. However, there is the possibility of increasing revenues led by new product launches from its parent company's portfolio. However, we remain cautious given the challenges especially on the margin front. More importantly, valuations are also expensive. We thus reiterate our 'Sell' rating on the stock.

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Jun 25, 2021 01:13 PM


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