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Aventis: Other income boosts profits - Views on News from Equitymaster

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Aventis: Other income boosts profits

Apr 26, 2011

Aventis has announced its 1QCY11 results. The company has reported 10.7% YoY growth in sales and 40% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grew by 10.7% YoY during 1QCY11 led by the growth in its core pharmaceutical business.
  • Operating margins rose 1.2% to 21.6% during the quarter especially due to a fall in raw material and staff costs (as percentage of sales).
  • Bottomline increased by a staggering 40% YoY during the quarter due to huge increase in other income and better operational performance.

Financial performance snapshot
(Rs m) 1QCY10 1QCY11 Change
Net sales 2,683 2,970 10.7%
Expenditure 2,150 2,328 8.3%
Operating profit (EBIDTA)  533  642 20.5%
EBDITA margin (%) 19.9% 21.6%  
Other income     57  172 201.8%
Depreciation     43     57 32.6%
Interest  -        2  
Profit before tax  547  760 38.9%
Tax  186  252 35.5%
Profit after tax/(loss)  361  506 40.2%
Net profit margin (%) 13.5% 17.0%  
No. of shares (m) 23.0  23.0   
Diluted earnings per share (Rs)   73.7  
Price to earnings ratio (x)*   27.1  

What has driven performance in 1QCY11?
  • Aventis clocked a 10.7% growth in sales during 1QCY11. This was led by the double digit growth in core pharmaceutical business. Further, the exports, which have otherwise performed erratically during the previous quarters,did not decline and remained stable.

    Revenue break-up
    (Rs m) 1QCY10 1QCY11 Change
    Domestic sales - Others 1,972 2,221 12.63%
    Export sales 542 542 0.00%
    Total 2,514 2,763 9.90%

  • Operating margins increased by 1.2% to 21.6% during the quarter. This was largely due to the reduction in raw material costs from 47% in 1QCY10 to 45.8% in 1QCY11 (as percentage of sales). Staff costs and other expenditure also decreased during the quarter to further improve operating margins. As a result, operating profits grew by 20% YoY for the quarter.

  • Bottomline grew by a robust 40% YoY during the quarter due to increase in operating profits and huge increase in other income. The other income trebled to Rs 172 m.

What to expect?
At the current price of Rs 2,000, the stock is trading at a multiple of 19.6 times our estimated CY13 earnings (Research Pro subscribers can view the latest updates here). In the domestic market, Aventis has strong presence in the fast-growing lifestyle segment. Its focus on strategic brands and new products launches for tier II market is expected to be the key growth drivers going forward. The management also plans to increase exports. However, while margin pressure may be felt in some quarters, overall, we expect them to remain stable over the next two years. Overall, current valuations do not leave much on the table for investors.

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