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Sanofi India: Exceptional gain boosts bottomline - Views on News from Equitymaster
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Sanofi India: Exceptional gain boosts bottomline
Jun 16, 2015

Sanofi India has announced its 1QCY15 results. The company has reported 9.5% YoY growth in sales and 24.8% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 9.9% YoY during the quarter led by growth in pharmaceuticals business and other operating income.
  • Total operating margins decline by 0.8% to 24.4% for the quarter.
  • Net profits surge by 24.8% YoY, on the back of exceptional income.

Financial Performance: A snapshot
(Rs m) 1QCY14 1QCY15 Change
Net sales 4,199 4,598 9.5%
Other operating income 250 291 16.4%
Expenditure 3,639 4,060 11.6%
Operating profit (EBDITA) 810 829 2.3%
EBDITA margin (%) 25.2% 24.4%  
Other income 215 194 -9.8%
Interest (net) 2  1  
Depreciation 240 259 7.9%
Profit before tax 783 763 -2.6%
Tax 266 279 4.9%
Exceptional gain - 161  
Profit after tax/(loss) 517 645 24.8%
Net profit margin (%) 18.3% 20.4%  
No. of shares (m)   23.0  
Diluted earnings per share (Rs)   112.6  
Price to earnings ratio (x)*   28.2  
*based on trailing 12 months earnings

What has driven performance in 1QCY15?
  • Sanofi clocked net sales growth of 9.5% YoY during 1QCY15 and 16.4% YoY growth in the operating income. Company had reduced the prices of its key brands in CY14. During July 2014, NPPA had issued new prices for three drugs of the company viz; Cardace, Clexane 20mg, Amaryl. Subsequently, NPPA had withdrawn those guidelines due to a writ petition filed in Delhi High court by OPPI. The litigation on this issue continues, and hence Sanofi has decided not to reinstate previous prices.

  • In April 2015, the company had taken price hike of 10% in its Non NLEM (National list of essential medicines) drugs. Thus, Sanofi has taken price hike for approximately 60% of its product basket. NLEM products accounts for around 40% of the total portfolio.

  • Operating margins declined by 0.8% YoY during the quarter due to increase in employee costs. However, higher other expenses nullified this impact. Thus, operating profits grew modestly by 2.3% YoY for the said period.

  • Net profits grew by 24.8% for 1QCY15. Company had received some extraordinary gain during the quarter. Excluding this exceptional gain, profits were down by 6.4% YoY.
What to expect?

At the current price of Rs 3,172, the stock is trading at a price to earnings multiple of 25.1 times our estimated CY16 earnings. Unlike its peers in the MNC pharma space, Sanofi Aventis is not much impacted by the pricing policy. The company's differentiated portfolio has helped it to some extent. Having said that, the ongoing pricing control in India can impact Sanofi's revenues too. More importantly, valuations are expensive. We thus reiterate our SELL rating on the stock.

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