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Aventis Pharma: Strategic focus - Views on News from Equitymaster
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  • Mar 20, 2003

    Aventis Pharma: Strategic focus

    Aventis Pharma Limited, one of the leading pharmaceutical companies in India, recently announced FY03 results. We take a detailed look at the company's performance.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Net Sales 1,513 1,576 4.2% 5,462 6,157 12.7%
    Other Income 40 26 -35.0% 127 98 -22.8%
    Total expenditure 1,226 1,310 6.9% 4,476 5,185 15.8%
    Operating Profit (EBDIT) 287 266 -7.3% 986 972 -1.4%
    Operating Profit Margin (%) 19.0% 16.9%   18.1% 15.8%  
    Interest (net) 0 0 - 15 4 -73.3%
    Depreciation 38 38 0.0% 151 150 -0.7%
    Profit before Tax 289 254 -12.1% 947 916 -3.3%
    Extraordinary items -39 -5 - -8 -9 -
    Tax 60 81 35.0% 273 296 8.4%
    Profit after Tax/(Loss) 190 168 -11.6% 666 611 -8.3%
    Effective tax rate (%) 20.8% 31.9%   28.8% 32.3%  
    Net profit margin (%) 12.6% 10.7%   12.2% 9.9%  
    No. of Shares (eoy) (m) 23.0 23.0   23.0 23.0  
    Earnings per share* 33.0 29.2   29.0 26.6  
    Current P/e ratio   8.8     9.7  

    Aventis reported 4% topline growth in the December quarter, led by an encouraging 15% growth in the domestic pharma business. Rhone Poulenc added 1.4% to this domestic sale spurt. Exports were down 22% during the quarter. In the full year 2002, domestic sales were up nearly 9% and exports displayed a growth of 27% (led by exports to Russia and CIS countries). Overall, Aventis finished FY03 with nearly 13% topline growth. Aventis domestic sales performance was in line with the industry sales trend. However, the company had discontinued certain non-profitable products accounting for 4% of 2001 sales. In that sense, Aventis did well in the domestic markets.

    Over the last few years, Aventis has restructured its product folio and is currently focusing on 30 brands for the domestic market. Out of the these, 12 brands fall under the purview of the DPCO, representing 38% of FY03 domestic sales. The contribution from products under DPCO has come down to these levels from over 50% just a couple of years ago.

    Sales: Vital stats...
    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Domestic sales 1,070 1,230 15.0% 4,246 4,611 8.6%
    Exports 443 346 -21.9% 1,216 1,546 27.1%
    Total Sales 1,513 1,576 4.2% 5,462 6,157 12.7%

    The top 10 brands accounted for 72% of domestic sales in FY03 and grew by 16% YoY. Growth in strategic brands such as Clexane (44% growth), Amaryl (anti diabetes - 41% growth), Targocid (Anti-infective - 34%), Cardace (Cardiovascular - 32%) and Allegra (anti-histamine - 15%) peppered the domestic performance of the company. Growth for anti-rabies vaccine 'Rabipur' was over 13% YoY. It must be noted that the company has almost 80% market share in the anti-rabies segment. However, going forward the entry of Cadila in this segment may take away some share from Aventis in this category.

    Operating margins of the company declined significantly. This was largely as a result of an 18% increase in raw material costs brought about by imposition of customs duties on Clexane and Cefrom as well as rupee depreciation. This and a 23% dip in the company's other income resulted in Aventis reporting an 8% fall at net profit level.

    Cost break-up
    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Raw material 791 907 14.7% 2,830 3,332 17.7%
    Staff cost 122 127 4.1% 464 510 9.9%
    Other expenditure 313 276 -11.8% 1,182 1,343 13.6%
    Total 1,226 1,310 6.9% 4,476 5,185 15.8%

    At the current price of Rs 257, the stock trades at almost 10x FY03 earnings. On the back of the support extended by the parent, Aventis has transformed itself from a company catering mainly to the anti-infectives and pain management segments to a company with a strong and focused portfolio of products for the chronic and critical-care therapeutic segments. The strategic brands continue to show healthy growth rates and this is expected to offset the impact of the laggards in its folio.



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