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Aventis Pharma: OPM disappointment continues…

Oct 31, 2002

Aventis Pharma, has reported nearly 13% topline growth for 3QFY03 on the back of strong performance of its strategic brands and jump in exports to CIS countries. The results for the relevant period under review are on a merged basis with RPR (Rhone Poulenc Rorer) and hence not exactly comparable on a like to like basis with the previous year numbers.

(Rs m) 3QFY02 3QFY03 % Change 9mFY02 9mFY03 % Change
Net Sales 1,412 1,592 12.7% 3,802 4,516 18.8%
Other Income 26 31 19.2% 81 72 -11.1%
Expenditure 1,141 1,328 16.4% 3,097 3,810 23.0%
Operating Profit (EBDIT) 271 264 -2.6% 705 706 0.1%
Operating Profit Margin (%) 19.2% 16.6%   18.5% 15.6%  
Interest 4 1 -75.0% 15 4 -73.3%
Depreciation 38 38 0.0% 113 112 -0.9%
Profit before Tax 255 256 0.4% 658 662 0.6%
Extraordinary Expenses (VRS) (39) (5) - 31 (4) -
Tax 64 85 32.8% 213 215 0.9%
Profit after Tax/(Loss) 152 166 9.2% 476 443 -6.9%
Net profit margin (%) 10.8% 10.4%   12.5% 9.8%  
No. of Shares (eoy) (m) 23 23   23 23  
Diluted Earnings per share* 26.4 28.9   27.6 25.7  
P/E (at current price)   11.1     12.5  
(*- annualised)            

Domestic sales have grown by 9% from Rs 1.2 bn to Rs 1.3 bn including Rs 96 m from merger of RPR business. The performance has been on the back of strong growth in strategic products such as cardace (20% - cardiovascular), Amaryl (34% - anti-diabetes) and Targocid (29% - anti-infective). In addition, Clexane, acquired from RPR grew by a strong 41% during the quarter. Formulations exports sales (mainly to CIS countries) have recorded a growth of more than 20%.The company’s Ankleshwar unit is being used by the parent as a sourcing base for bulk drugs like Ramipril and Articaine. Further, the company has indicated that the parent has initiated steps to import Daonil formulations (a leading product in anti-diabetic segment) from India. Exports currently account for about 20% of the company’s revenues with Russia and CIS countries accounting for about 85% of the total export pie.

Despite strong sales growth, operating margins have been playing a spoilsport. Operating margins dropped from 19.2% in 3QFY02 to 16.6% this September quarter. Though the company's products enjoy a strong brand equity, it faces stiff competition from generic products. Raw material consumption to sales ratio indicates a drop in realisations for the company's products. Further, operating margins have also been affected on account of front loading of marketing expenses for products (Lantus and Actonel) expected to be launched in the next year. The company has stated that they expect these product promotion expenses to decline in the coming quarters.

Cost break-up
(Rs m) 3QFY02 3QFY03 % Change 9mFY02 9mFY03 % Change
Raw material 744 886 19.1% 1,949 2,425 24.4%
Staff cost 114 119 4.4% 329 383 16.4%
Others 283 323 14.1% 819 1,002 22.3%
Total Expenditure 1,141 1,328 16.4% 3,097 3,810 23.0%

At the current market price of Rs 320, the stock trades at 9.7x our expected earnings for FY03. On the back of the support extended by the parent, Aventis has transformed itself from a company catering mainly to the anti-infectives and pain management segments to a company with a strong and focused portfolio of products for the chronic and critical-care therapeutic segments. The strategic brands continue to grow at healthy growth rates and this is expected to offset the impact of the laggards in its folio. This portfolio bias is expected to continue in the foreseeable future as well. Notwithstanding some unclarity on the impact of the DPCO order, valuations of the company are attractive on a peer comparision basis.

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