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Aventis: India, exports perform

Oct 30, 2009

Performance summary
  • Net sales grow by a mere 6% YoY during 3QCY09 largely due to the absence of sales from the vaccine ‘Rabipur’, which were present in 3QCY08. However, on excluding the same, sales grow by a healthy 14% YoY.
  • Operating margins fall by 2.4% to 21.1% during the quarter due to higher staff costs and other expenditure (as percentage of sales).
  • Decline in operating profits and other income takes its toll on the bottomline, which falls by 2% YoY.

Financial performance: A snapshot
(Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
Net sales 2,616 2,775 6.1% 7,501 7,958 6.1%
Expenditure 2,000 2,189 9.5% 5,745 6,058 5.4%
Operating profit (EBIDTA) 616 586 -4.9% 1,756 1,900 8.2%
EBDITA margin (%) 23.5% 21.1%   23.4% 23.9%  
Other income 116 99 -14.7% 271 273 0.7%
Interest -   -     1 -    
Depreciation 43 44 2.3% 138 129 -6.5%
Profit before tax 689 641 -7.0% 1,888 2,044 8.3%
Tax 243 203 -16.5% 679 730 7.5%
Profit after tax/(loss) 446 438 -1.8% 1,209 1,314 8.7%
Net profit margin (%) 17.0% 15.8%   16.1% 16.5%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)*         76.8  
Price to earnings ratio (x)*         20.5  
(* on a trailing 12-month basis)

What has driven performance in 3QCY09?
  • Aventis clocked a 6% YoY growth in sales during 3QCY09. Having said that, this was largely due to the absence of sales from the vaccine ‘Rabipur’ this quarter, which were present in 3QCY08. Thus, on excluding the same, sales registered a healthy 14% YoY growth largely led by the domestic (up 16% YoY) business. 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. As far as exports are concerned, while the 7% YoY growth during the quarter was lukewarm, for the nine month period exports grew at a robust pace of 24% YoY.

    Revenue break-up
    (Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
    Domestic sales - Others 1,743 2,025 16.2% 4,836 5,534 14.4%
    Domestic sales - 'Rabipur' 214 -   884 92 -89.6%
    Total domestic sales 1,957 2,025 3.5% 5,720 5,626 -1.6%
    Export sales 522 560 7.3% 1,414 1,747 23.6%
    Total 2,479 2,585 4.3% 7,134 7,373 3.4%

  • Operating margins fell by 2.4% to 21.1% during the quarter. This was largely due to a rise in staff costs from 11.1% in 3QCY08 to 13.7% in 3QCY09 and other expenditure (as percentage of sales). Raw material costs, despite falling from 46.6% of sales in 3QCY08 to 45.6% in 3QCY09, were not enough in arresting the decline in operating margins. For the nine month period, however, operating margins improved marginally by 0.5% to 23.9%.

  • Due to the 5% YoY decline in operating profits and 15% YoY reduction in other income, Aventis’ bottomline fell by 2% YoY during the quarter. This is despite a 17% YoY drop in tax expenses. For the nine month period, the company reported a 9% YoY growth in net profits in tandem with the 8% YoY growth in operating profits.

What to expect?
At the current price of Rs 1,573, the stock is trading at a multiple of 17.3 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. Having said that, while we remain positive on the growth prospects of the company, valuations appear to be on the higher side.

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