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Sanofi India: Meek performance - Views on News from Equitymaster
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Sanofi India: Meek performance
May 6, 2013

Sanofi India has announced its 1QCY13 results. The company has reported 12.5% YoY growth in sales and 11% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 12.5% YoY during the quarter led by growth in its pharmaceuticals business and other operating income.
  • Total operating margins decline by 0.8% to 26.8% for the quarter.
  • Bottom line growth of 11% for the quarter is helped by increase in other income.

Financial Performance : A snapshot
(Rs m) 1QCY12 1QCY13 Change
Net sales 3,226 3,629 12.5%
Other operating income 199 252 26.6%
Expenditure 2,733 3,161 15.7%
Operating profit (EBDITA) 692 720 4.0%
EBDITA margin (%) 21.5% 19.8%  
Other income   89 163 83.1%
Interest (net)  4  3 -25.0%
Depreciation 183 223 21.9%
Profit before tax 594 657 10.6%
Tax 193 213 10.4%
Profit after tax/(loss) 401 444 10.7%
Net profit margin (%) 18.6% 19.2%  
No. of shares (m)     23.0  
Diluted earnings per share (Rs)     78.6  
Price to earnings ratio (x)*     29.4  
*based on trailing 12 months earnings

What has driven performance in 1QCY13?
  • Sanofi clocked net sales growth of 12.5% YoY during 1QCY13 and 27% growth in the operating income. The company launched two new products during the quarter viz., Combiflam Plus and Allegra M. Currently, the company's six brands form part of the Top 100 (by value) selling drugs in India.

  • Operating margins declined by 0.8% YoY during the quarter due to increase in the cost of raw materials. Thus, operating profits grew modestly by just 4% YoY for the said period.

  • Net profits grew by 11% for 1QCY13. This was on account of the robust 83% YoY rise in other income. Had it not been for the increase in depreciation charges, growth in the bottomline would have been higher.

What we expect?

At the current price of Rs 2,516, the stock is trading at a price to earnings multiple of 19.8 times our estimated CY15 earnings. MNC pharma players including Sanofi India will be impacted the most when the new price control policy comes into force. This is because they are entirely focused on the domestic market as compared to their domestic counterparts which focus on exports as well. This will impact the overall growth on the topline and on the margins front as well. Thus even Sanofi's revenues are likely to get impacted. But, there is also the possibility of increasing revenues due to new product launches from its parent company portfolio, which will help company's topline growth. Having said that, Sanofi's bottom line will be impacted by the increase in the amortization expenses on goodwill. More importantly, valuations are expensive. We thus reiterate our SELL rating on the stock.

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