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Aventis: Costs rise, exports fall
Jul 19, 2010

Aventis has announced its 2QCY10 results. The company has reported 9% YoY growth in sales and 10% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 9% YoY during 2QCY10 led by the growth in its core pharmaceutical business.
  • Operating margins plunge by 4.7% to 21.5% during the quarter due to higher raw material costs and other expenditure (as percentage of sales).
  • Bottomline declines by 10% YoY during the quarter due to fall in operating profits and lower other income.


Financial performance: A snapshot
(Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
Net sales 2,668 2,905 8.9% 5,183 5,588 7.8%
Expenditure 1,970 2,280 15.7% 3,869 4,430 14.5%
Operating profit (EBIDTA) 698 625 -10.5% 1,314 1,158 -11.9%
EBDITA margin (%) 26.2% 21.5%   25.4% 20.7%  
Other income 80 63 -21.3% 174 120 -31.0%
Depreciation 43 47 9.3% 85 90 5.9%
Profit before tax 735 641 -12.8% 1,403 1,188 -15.3%
Tax 264 217 -17.8% 527 403 -23.5%
Profit after tax/(loss) 471 424 -10.0% 876 785 -10.4%
Net profit margin (%) 17.7% 14.6%   16.9% 14.0%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)         64.5  
Price to earnings ratio (x)*         30.6  
* based on trailing 12 months earnings

What has driven performance in 2QCY10?
  • Aventis clocked a 9% YoY growth in sales during 2QCY09. This was led by the strong 15% YoY growth in sales from its core pharmaceutical business. However, further growth was arrested due to the 12% YoY decline in exports, which continues to face volatility. For the half year, while sales from the domestic business (excluding 'Rabipur') grew by a decent 18% YoY, export sales dipped by 9% YoY. The performance so far on the topline front is in line with our estimates for the full year.

    Revenue break-up
    (Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
    Domestic sales - Others 1,888 2,177 15.3% 3,509 4,150 18.3%
    Domestic sales - 'Rabipur' - -   92 -  
    Total domestic sales 1,888 2,177 15.3% 3,601 4,150 15.2%
    Export sales 611 538 -11.9% 1,187 1,079 -9.1%
    Total 2,499 2,715 8.6% 4,788 5,229 9.2%

  • Operating margins fell by 4.7% to 21.5% during the quarter. This was largely due to a rise in raw material costs from 44.9% in 2QCY09 to 47.1% in 2QCY10 (as percentage of sales). Staff costs and other expenditure also increased during the quarter to further impact operating margins. As a result, operating profits fell by 10.5% YoY during the quarter. For the half year, operating profits declined by 12% YoY. Operating margins, for the year so far, are also in line with our estimates for the full year.

    Bottomline declined by 10% YoY during the quarter due to decline in operating profits and reduction in other income. Had it not been for lower tax expenses, the fall in net profits would have been higher.

What to expect?
At the current price of Rs 1,973, the stock is trading at a multiple of 22.5 times our estimated CY12 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. However, we expect the pressure on margins to continue. Overall, we maintain our view on the stock.

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