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Aventis: Strong despite ‘Rabipur’ setback - Views on News from Equitymaster

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Aventis: Strong despite ‘Rabipur’ setback

May 8, 2009

Performance summary
  • Net sales grow by 10% YoY during 1QCY09 led by strong performances of the exports segment.
  • Operating margins improve by 1.8% to 24.5% during the quarter due to lower raw material costs and other expenditure (as percentage of sales).
  • Net profit grows by 17% YoY during the quarter but is lower than the growth in operating profits due to a higher tax outgo.

Financial performance: A snapshot
(Rs m) 1QCY08 1QCY09 Change
Net sales 2,281 2,515 10.3%
Expenditure 1,764 1,899 7.7%
Operating profit (EBIDTA) 517 616 19.1%
EBDITA margin (%) 22.7% 24.5%  
Other income 77 94 22.1%
Depreciation 51 42 -17.6%
Profit before tax 543 668 23.0%
Tax 198 263 32.8%
Profit after tax/(loss) 345 405 17.4%
Net profit margin (%) 15.1% 16.1%  
No. of shares (m) 23.0 23.0  
Diluted earnings per share (Rs)*   74.9  
Price to earnings ratio (x)*   13.4  
(* on a trailing 12-month basis)

What has driven performance in 1QCY09?
  • Aventis clocked a decent 10% YoY growth in sales during 1QCY09, which was largely led by the robust 46% YoY growth in exports. As far as the domestic business is concerned, while overall domestic sales declined by 3.5%, the same was largely due to the discontinuation of the sale of the anti-rabies vaccine ‘Rabipur’. It must be noted that Aventis had formed a JV with Novartis Vaccines called Chiron, in which the former had 49% stake for the distribution of ‘Rabipur’ in India. Since Novartis Vaccines chose not to renew the contract, sales from ‘Rabipur’ were considerably less this quarter and will not be reflected in Aventis’ numbers henceforth. Thus, excluding ‘Rabipur’, domestic sales reported a healthy 15% YoY growth, while overall sales (excluding operating income) registered a strong 21.5% YoY growth during the quarter. Exports logged in a good growth rate and while the performance of this business has been volatile in the past, the last two quarters have witnessed healthy growth, which is an encouraging sign.

    Revenue break-up
    (Rs m) 1QCY08 1QCY09 Change
    Domestic sales - Others 1,414 1,621 14.6%
    Domestic sales - 'Rabipur' 361 92 -74.5%
    Total domestic sales 1,775 1,713 -3.5%
    Export sales 394 576 46.2%
    Total 2,169 2,289 5.5%

  • Operating margins improved by 1.8% to 24.5% during the quarter. This was largely due to a fall in raw material costs and other expenditure (as percentage of sales). Going forward, we do not foresee any significant margin improvement and expect operating margins to remain under pressure.

  • Led by the 19% YoY growth in operating profits, Aventis’ bottomline grew by 17% YoY during the quarter. Having said that, the growth was a tad lower due to higher tax expenses (effective tax rate increased from 36.5% in 1QCY08 to 39.4% in 1QCY09).

What to expect?
At the current price of Rs 1,000, the stock is trading at a multiple of 11 times our estimated CY11 earnings. In the domestic market, Aventis’ strong presence in the fast-growing lifestyle segment along with its focus on strategic brands are expected to be the key growth drivers going forward. Having said that, we expect the pressure on margins to continue. Though inconsistent in the past, the fact that the exports segment witnessed a growth in sales during the last few quarters is an encouraging sign. Overall, we maintain our positive view on the stock.

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