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Sanofi India: Subdued quarter - Views on News from Equitymaster
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Sanofi India: Subdued quarter
Dec 11, 2014

Sanofi India has announced its 3QCY14 results. The company has reported 3.1% YoY growth in sales and a decline of 19.4% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 3.1% YoY during the quarter led growth in pharmaceuticals business.
  • Total operating margins decline to 27% from 31.6% in 3QCY14.
  • Because of the fall in operating profits, net profits too dip by 19.4% YoY during the said quarter.

Financial Performance : A snapshot
(Rs m) 3QCY13 3QCY14 Change 9MFY13 9MFY14 Change
Net sales 4,725 4,873 3.1% 12,454 13,939 11.9%
Other operating income 249 276 10.8% 752 717 -4.7%
Expenditure 3,728 4,110 10.2% 10,365 11,828 14.1%
Operating profit (EBDITA) 1,246 1,039 -16.6% 2,841 2,828 -0.5%
EBDITA margin (%) 31.6% 27.0%   28.9% 25.4%  
Other income 153 141 -7.8% 461 491 6.5%
Interest (net) - -   4 4 0.0%
Depreciation 234 240 2.6% 684 720 5.3%
Profit before tax 1,165 940 -19.3% 2,614 2,595 -0.7%
Tax 396 320 -19.2% 888 883 -0.6%
Profit after tax/(loss) 769 620 -19.4% 1,726 1,712 -0.8%
Net profit margin (%) 21.5% 18.4%     23.0  
No. of shares (m)         103.0  
Diluted earnings per share (Rs)         35.1  
*based on trailing 12 months earnings

What has driven performance in 3QCY14?
  • Sanofi clocked net sales growth of 3.1% YoY during 3QCY14 and increase of 10.8% YoY in the operating income. The company derives large part of its sales from one segment that is pharmaceuticals. The current quarter's performance continued to witness impact of the pricing policy. That said, the impact was lesser for Sanofi as compared to its peers.

  • Operating margins fell by 4.6% YoY during the quarter. As a result, operating profits declined by 17% YoY. The pricing policy impacted the overall margin profile of the company.

  • On the back of poor sales growth and lower margins, the company's net profits fell by 19% YoY.
What to expect?
At the current price of Rs 3,616, the stock is trading at a price to earnings multiple of 28.4 times our estimated CY16 earnings. Among the MNC pharma companies, Sanofi has a better portfolio. This company was least impacted by the pricing policy as compared to its peers. The company has drug portfolio of cardiovascular and diabetes therapies. There has been an ongoing debate of bringing these drugs under pricing control. Thus, any negative development on this front will impact the company's profitability.

Further, since the current valuations do not leave any upside, we reiterate our SELL rating on the stock.

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