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Aventis: Rising margins take the cake - Views on News from Equitymaster
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Aventis: Rising margins take the cake
Jul 29, 2009

Performance summary
  • Net sales grow by a mere 2.5% YoY during 2QCY09 largely due to the absence of sales from the vaccine ‘Rabipur’, which were present in 2QCY08. However, on excluding the same, sales grow by a healthy 15% YoY.
  • Operating margins improve by 2.3% to 26.2% during the quarter due to lower raw material costs and other expenditure (as percentage of sales).
  • Strong performance at the operating level boils down to the bottomline, which registers a growth of 13% YoY.


Financial performance: A snapshot
(Rs m) 2QCY08 2QCY09 Change 1HCY08 1HCY09 Change
Net sales 2,604 2,668 2.5% 4,885 5,183 6.1%
Expenditure 1,982 1,970 -0.6% 3,746 3,869 3.3%
Operating profit (EBIDTA) 622 698 12.2% 1,139 1,314 15.4%
EBDITA margin (%) 23.9% 26.2%   23.3% 25.4%  
Other income 78 80 2.6% 155 174 12.3%
Depreciation 44 43 -2.3% 95 85 -10.5%
Profit before tax 656 735 12.0% 1,199 1,403 17.0%
Tax 238 264 10.9% 436 527 20.9%
Profit after tax/(loss) 418 471 12.7% 763 876 14.8%
Net profit margin (%) 16.1% 17.7%   15.6% 16.9%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)*         77.2  
Price to earnings ratio (x)*         16.0  
(* on a trailing 12-month basis)

What has driven performance in 2QCY09?
  • Aventis clocked a subdued 2.5% YoY growth in sales during 2QCY09. Having said that, this was largely due to the absence of sales from the vaccine ‘Rabipur’ this quarter, which were present in 2QCY08. Thus, on excluding the same, sales registered a healthy 15% YoY growth largely led by both the domestic (up 12% YoY) and exports (up 23% YoY) businesses. As far as ‘Rabipur’ is concerned, 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, there were no sales from ‘Rabipur’ this quarter and will not be reflected in the coming quarters as well.

    Revenue break-up
    (Rs m) 2QCY08 2QCY09 Change 1HCY08 1HCY09 Change
    Domestic sales - Others 1,679 1,888 12.4% 3,093 3,509 13.4%
    Domestic sales - 'Rabipur' 309 - -100.0% 670 92 -86.3%
    Total domestic sales 1,988 1,888 -5.0% 3,763 3,601 -4.3%
    Export sales 498 611 22.7% 892 1,187 33.1%
    Total 2,486 2,499 0.5% 4,655 4,788 2.9%

  • Operating margins improved by 2.3% to 26.2% during the quarter. This was largely due to a fall in raw material costs from 45.1% in 2QCY08 to 44.9% in 2QCY09 and other expenditure (as percentage of sales). Other expenditure fell sharply from 19.7% of sales in 2QCY08 to 15.8% in 2QCY09. For the half year too, operating margins improved by 2.1% to 25.4%.

  • Led by the 12% YoY growth in operating profits, Aventis’ bottomline grew by 13% YoY during the quarter. For the half year period growth in net profits was more robust at 15% YoY.

What to expect?
At the current price of Rs 1,238, the stock is trading at a multiple of 13.6 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 strong growth in sales during the last few quarters is an encouraging sign. Overall, we maintain our positive view on Aventis.

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