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Aventis: Exports supports sales growth - Views on News from Equitymaster

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Aventis: Exports supports sales growth
Dec 2, 2011

Aventis has announced its third quarter results for calendar year 2011. The company has reported 14.1% YoY growth in sales and 15.9% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 14.1% YoY led by the growth in its core pharmaceutical business
  • Operating margins increase by 110 bps (1.1%) to 21.7% due to steep fall in other expenditure and better employee productivity
  • Although net profits increase by 15.9% YoY, the pace of growth is lower than that of operating profits on account of higher depreciation charges and tax expenses.

Financial performance: A snapshot
(Rs m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net sales 2,936 3,350 14.1% 8,524 9,569 12.3%
Expenditure 2,331 2,624 12.6% 6,761 7,552 11.7%
Operating profit (EBIDTA) 605 726 20.0% 1,763 2,017 14.4%
EBDITA margin (%) 20.6% 21.7%   20.7% 21.1%  
Other income 133 146 9.8% 253 458 81.0%
Depreciation 53 61 15.1% 143 169 18.2%
Interest - -   - 2  
Profit before tax 685 811 18.4% 1,873 2,304 23.0%
Tax 212 263 24.1% 615 753 22.4%
Profit after tax/(loss) 473 548 15.9% 1,258 1,551 23.3%
Net profit margin (%) 16.1% 16.4%   14.8% 16.2%  
No. of shares (m) 23 23        
Diluted earnings per share (Rs) 21 24        
Price to earnings ratio (x)*   28.5        
*On trailing 12 month basis

What has driven performance in 3QCY11?
  • Aventis clocked 14.1% YoY growth in sales during 3QCY11. This was led by healthy growth in exports, which were up 26.6% YoY. The domestic pharmaceutical business (contributes ~82% to sales) grew by a decent 11% YoY. The exports growth has been quite volatile in the past few quarters and this growth rate may not be sustainable going forward.

    Revenue break-up
    (Rs m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
    Domestic Sales-Others 2,320 2,575 11.0% 6,469 7,236 11.9%
    Export Sales 436 552 26.6% 1,516 1,682 10.9%
    Total sales 2,756 3,127 13.5% 7,985 8,918 11.7%

  • Operating margins increase by 110 bps to 21.7% during the quarter. This was largely due to the decrease in other expenditure which fell by 300 bps. The employee costs also fell by 100 bps. However, any further reduction in cost was offset by steep rise in raw material costs, which increased by 290 bps from 45.1% in 3QCY10 to 48% in 3QCY11.

  • Although net profits increased by 15.9% YoY, the pace of growth was lower than that of operating profits on account of higher depreciation charges and tax expenses. Other income grew at a lower rate of 9.8% YoY.

What to expect?
At the current price of Rs 2,280, the stock is trading at a price to earnings multiple of 24.5 times our estimated CY13 earnings. In the domestic market, Aventis has a strong presence in the fast-growing lifestyle segment. Its focus on strategic brands and new products launches for tier II market is expected to be the key growth drivers going forward. The management also plans to increase exports as evident from the current quarter. The margins have also improved for this quarter, however, we feel that the company may not be able to sustain these going forward. Overall, at this time, current valuations do not leave much on the table for investors.

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