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Aventis: Bogged by falling exports - Views on News from Equitymaster

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Aventis: Bogged by falling exports

Nov 2, 2010

Aventis has announced its 3QCY10 results. The company has reported 5.8% YoY and 8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 6% YoY during 3QCY10 led by the growth in its core pharmaceutical business.
  • Operating margins shrink by 0.5% to 20.6% during the quarter due to higher other expenditure (as percentage of sales).
  • Bottomline grows by 8% YoY during the quarter led by higher other income.

Financial performance: A snapshot
(Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
Net sales 2,775 2,936 5.8% 7,958 8,524 7.1%
Expenditure 2,189 2,331 6.5% 6,058 6,761 11.6%
Operating profit (EBIDTA) 586 605 3.2% 1,900 1,763 -7.2%
EBDITA margin (%) 21.1% 20.6%   23.9% 20.7%  
Other income 99 133 34.3% 273 253 -7.3%
Depreciation 44 53 20.5% 129 143 10.9%
Profit before tax 641 685 6.9% 2,044 1,873 -8.4%
Tax 203 212 4.4% 730 615 -15.8%
Profit after tax/(loss) 438 473 8.0% 1,314 1,258 -4.3%
Net profit margin (%) 15.8% 16.1%   16.5% 14.8%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)         66.0  
Price to earnings ratio (x)*         27.6  
* based on trailing 12 months earnings

What has driven performance in 3QCY10?
  • Aventis clocked a 6% YoY growth in sales during 3QCY10. This was led by the strong 15% YoY growth in sales from its core pharmaceutical business. However, further growth was arrested due to the 22% YoY decline in exports, which continues to face volatility. For the nine month period, while sales from the domestic business (excluding ‘Rabipur’) grew by a decent 17% YoY, export sales dipped by 13% YoY. The performance so far on the topline front is in line with our estimates for the full year.

    Revenue break-up
    (Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
    Domestic sales - Others 2,025 2,320 14.6% 5,534 6,469 16.9%
    Domestic sales - 'Rabipur' - -   92 -  
    Total domestic sales 2,025 2,320 14.6% 5,626 6,469 15.0%
    Export sales 560 436 -22.1% 1,747 1,516 -13.2%
    Total 2,585 2,756 6.6% 7,373 7,985 8.3%

  • Operating margins fell by 0.5% to 20.6% during the quarter. This was largely due to a rise in other expenditure from 19.6% in 3QCY09 to 20.9% in 3QCY10 (as percentage of sales). Raw material and staff costs remained under control. As a result, operating profits rose by a mere 3% YoY during the quarter. For the nine month period, operating profits declined by 7% YoY. Operating margins, for the year so far, are also in line with our estimates for the full year.

  • Bottomline growth at 8% YoY was faster than the growth in operating profits on account of higher other income. However, for the nine month period, net profits fell by 4% YoY.

What to expect?
At the current price of Rs 1,820, the stock is trading at a multiple of 20.7 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. Further, the company is incurring expenditure on two projects – the first is to deliver high quality low cost healthcare to the rural population and the second is to enter the OTC (over-the-counter) market. These initiatives will further bolster growth. However, we expect the pressure on margins to continue. Overall, we maintain our view on the stock.

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Mar 20, 2019 03:37 PM


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