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Sanofi India: Cost control bolsters margins
Dec 27, 2012

Sanofi India has announced its 3QCY12 results. The company has reported 6% YoY growth in sales and a 27% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows marginally by 6% YoY during the quarter led by growth in domestic formulations business.
  • Operating margins improve by 6.3% due to lower operating costs. Thus, operating profits grow by 54% YoY during the quarter.
  • Surge in depreciation and tax expenses slows down bottomline growth to 27%.

Financial Performance : A snapshot
(Rs m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net sales 3,741 3,966 6.0% 8,918 10,932 22.6%
Expenditure 3,219 3,161 -1.8% 7,588 9,113 20.1%
Operating profit (EBDITA) 522 805 54.2% 1,330 1,819 36.8%
EBDITA margin (%) 14.0% 20.3%   14.9% 16.6%  
Other income 267 266 -0.4% 1,107 822 -25.7%
Interest (net) 4 3 -25.0% - 11  
Depreciation 186 307 65.1% 169 676 300.0%
Profit before tax 599 761 27.0% 2,268 1,954 -13.8%
Tax 194 248 27.8% 753 635 -15.7%
Profit after tax/(loss) 405 513 26.7% 1,515 1,319 -12.9%
Net profit margin (%) 10.8% 12.9%   17.0% 12.1%  
No. of shares (m)         23.0  
Diluted earnings per share (Rs)         73.0  
Price to earnings ratio (x)*         31.5  
*based on trailing 12 months earnings

What has driven performance in 3QCY12?
  • Aventis clocked marginal growth of 6% YoY in sales during 3QCY12. While the company has not divulged details of the revenue break-up, growth would have come from the domestic business which accounts for around 81% of total sales. For the nine month period, sales were up by a healthy 23% YoY and is in line with our estimates for the year.

  • Operating margins improved by 6.3% to 20.3% during the quarter due to lower operating costs. All expense heads (notably raw material, staff and other expenses) witnessed a decline. Thus, operating profits grew by a robust 54% YoY during the quarter.

  • Growth in net profits slowed down to 27% YoY on account of a surge in depreciation charges and tax expenses. On the other hand, for the nine month period, net profits fell by 13% YoY due to reduction in other income and higher depreciation charges.

What to expect?
At the current price of Rs 2,300, the stock is trading at a price to earnings multiple of 19.6 times our estimated CY14 earnings. Going forward, with the pharma pricing policy having come into place, MNC pharma players including Sanofi India are likely to see some impact on revenues from the domestic market. Infact, MNC players could be impacted the most given that they are entirely focused on the domestic market as compared to their domestic counterparts. However, there is a possibility of increasing revenues due to the consolidation of Universal brands; but it has not been seen since the last couple of quarters. Overall, valuations are expensive and we have a 'Sell' view on the stock.

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