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Sanofi India: Price controls to impact growth
Aug 25, 2014

Sanofi India has announced its 2QCY14 results. The company has reported 18.7% YoY and 12.3% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 18.7% YoY during the quarter led by growth in the pharmaceuticals business. However, the operating income declines during the quarter.
  • Total operating margins decline by 3.4% to 24% for the quarter.
  • Bottomline grows by 12% YoY in tandem with the growth in operating profits.

Financial Performance : A snapshot
(Rs m) 2QCY13 2QCY14 Change 2HFY13 2HFY14 Change
Net sales 4,100 4,867 18.7% 7,729 9,066 17.3%
Other operating income 251 191 -23.9% 503 441 -12.3%
Expenditure 3,477 4,079 17.3% 6,638 7,718 16.3%
Operating profit (EBDITA) 874 979 12.0% 1,594 1,789 12.2%
EBDITA margin (%) 27.4% 24.0%   27.1% 24.6%  
Other income 145 135 -6.9% 308 350 13.6%
Interest (net) 1 2 100.0% 4 4 0.0%
Depreciation 227 240 5.7% 450 480 6.7%
Profit before tax 791 872 10.2% 1,448 1,655 14.3%
Tax 279 297 6.5% 492 563 14.4%
Profit after tax/(loss) 512 575 12.3% 956 1,092 14.2%
Net profit margin (%) 18.6% 15.7%     23.0  
No. of shares (m)         121.0  
Diluted earnings per share (Rs)         25.3  
Price to earnings ratio (x)*            
*based on trailing 12 months earnings

What has driven performance in 2QCY14?
  • Sanofi clocked net sales growth of 18.7% YoY during 2QCY14 and a decline of 23.9% in the operating income. The performance for the current quarter was healthy. However, the Indian regulator has notified for reduction of prices of more drugs falling under cardiovascular and diabetes category. This will have material negative impact on the company, since large part of its revenues comes from cardiovascular and diabetes.

  • Operating margins have fallen by 3.4% YoY during the quarter due to increase in material costs and product mix. Going forward, the margins will come under pressure, as the company's major brands will come under pricing control.

  • Bottomline grew by 12% YoY in tandem with the growth in operating profits.
What to expect?
At the current price of Rs 3,097, the stock is trading at a price to earnings multiple of 24.5 times our estimated CY16 earnings. MNC pharma players including Sanofi India will be impacted by the pricing policy. Sanofi India is expected take a hit of around 10% of sales going forward because of some cardiac and anti-diabetes drugs coming under price control.

Margins and profits both are also expected to get impacted because of this. Thus, taking into account the implications of the pricing policy on the company and the valuations it is trading at, we reiterate our SELL rating on the stock.

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