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Aventis Pharma: Impressive performance - Views on News from Equitymaster
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  • Mar 19, 2004

    Aventis Pharma: Impressive performance

    Aventis Pharma has reported 5.8% YoY growth in topline during year ended December 2003. The bottomline growth was much faster at 61% YoY. Aventis clocked a 9.6% topline and a significant 81% bottomline growth during the quarter ended December. Let's take a detailed look at the financial performance of the company.

    (Rs m) 4QFY03 4QFY04 Change FY03 FY04 Change
    Net Sales 1,576 1,728 9.6% 6,157 6,516 5.8%
    Other Income 26 31 19.2% 98 160 63.3%
    Expenditure 1,310 1,267 -3.3% 5,185 5,119 -1.3%
    Operating Profit (EBDIT) 266 461 73.3% 972 1,397 43.7%
    Operating Profit Margin (%) 16.9% 26.7%   15.8% 21.4%  
    Interest 0 2   4 2 -50.0%
    Depreciation 38 41 7.9% 150 174 16.0%
    Profit before Tax 254 449 76.8% 916 1,381 50.8%
    Extraordinary income -5 0   -9 70  
    Tax 81 145 79.0% 296 465 57.1%
    Profit after Tax/(Loss) 168 304 81.0% 611 986 61.4%
    Net profit margin (%) 10.7% 17.6%   9.9% 15.1%  
    No. of Shares (m) 23 23   23 23  
    Earnings per share (Rs)* 7.3 13.2   26.6 42.9  
    P/E (x)         15.6  

    The growth in the topline of the company in December quarter was in line with the industry growth. Some of the power brands of the company such as Cardace, Targocid, Combiflam, Avil and Soframycin fuelled the growth in the topline. These brands also continued to maintain the leadership in their respective segments. First half of the year 2003 was sluggish in growth terms for the whole pharma industry. Despite this, the performance of Aventis is commendable owing to strong bottomline growth.

    Cost Break Up
    As a % of sales FY03 FY04
    Raw material 54.1% 50.3%
    Staff cost 8.3% 8.4%
    Others 21.8% 19.8%
    Total Expenditure 84.2% 78.6%

    A look at the table above reveals that a lot of this cost efficiency has been contributed by the shrinking of raw material costs as a percentage of sales. This also indicates a shift in the company's product profile towards higher margin products.

    Continuing with its strategy of aggressive new product launches from its parent's product portfolio, Aventis Pharma introduced 'Lantus', the world's only 24-hour basal insulin in the anti–diabetics segment in the first half of the year. Considering that the new patent regime is going to be implemented from 2005, more such launches seems to be on anvil. These launches are likely to be one of the major growth drivers for the company going forward.

    At Rs 667 Aventis Pharma is trading at a P/E of 15.6x FY04 earnings. With the new patent regime coming likely to come into force just 9 months from now, the company's aggressive new product launches and the resultant new product portfolio, declining DPCO cover and focus on lifestyle segments, we remain positive about the long-term prospects of the company. However, although Aventis Pharma has been successfully charging a premium for its products, the sustainability of the same in view of the rising competition in the domestic market remains a concern.



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