• OCTOBER 21, 2003

Aventis Pharma: Strategy paying off

Aventis Pharma announced its 3QFY04 results last week. While the company has reported a marginal 2% growth in the topline, operating efficiencies have helped it record a sharp 57% rise in bottomline. For 9mFY04 also, the company has reported a 6% and 54% growth in net sales and net profit respectively. In this context, let us take a brief look at the company’s performance.

Results at a glance…
(Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
Net Sales 1,592 1,628 2.3% 4,573 4,828 5.6%
Other Income 31 61 96.8% 73 129 76.7%
Expenditure 1,328 1,264 -4.8% 3,867 3,891 0.6%
Operating Profit (EBDIT) 264 364 37.9% 706 937 32.7%
Operating Profit Margin (%) 16.6% 22.4%   15.4% 19.4%  
Interest 1 0   4 0  
Depreciation 38 38 0.0% 113 118 4.4%
Profit before Tax 256 387 51.2% 662 948 43.2%
Extraordinary income -5 -5   -4 55  
Tax 85 121 42.4% 215 320 48.8%
Profit after Tax/(Loss) 166 261 57.2% 443 683 54.2%
Net profit margin (%) 10.4% 16.0%   9.7% 14.1%  
No. of Shares (m) 23 23   23 23  
Earnings per share (Rs)* 28.9 45.4   25.7 39.6  
P/E (x)   11.2     12.8  

Aventis Pharma’s aggressive marketing strategy has helped it record a 7% growth in domestic sales during 3QFY03. The growth was fuelled by the good performance recorded by its strategic brands. Cardace (40%), Targocid (29%), Amarly (23%) and Clexane (17%) recorded impressive growth during the quarter. Among other major products, Combiflam (18% growth), Avil (10%) and Soframycin (9%) also continued to maintain leadership position in their respective segments. However, a 26% drop in export revenues stunted this growth. This was primarily on account of a drop in the overseas demand. Also, last year’s September quarter was exceptionally good for exports (34% growth over 3QFY02).

Cost break-up
(Rs m) 3QFY03 3QFY04 % Change 9mFY03 9mFY04 % Change
Raw material 886 830 -6% 2,425 2,443 1%
Staff cost 119 133 12% 383 407 6%
Others 323 301 -7% 1,059 1,041 -2%
Total Expenditure 1,328 1,264 -5% 3,867 3,891 1%

Despite flat growth in the topline, Aventis Pharma managed to improve its operating efficiency resulting in a 5.8 percentage points improvement in operating margins. This was primarily on account of a drop in the raw material cost as a percentage of sales from 56% in 3QFY03 to 51% in 3QFY04. Other income increased due to higher interest and dividend income. Thus, higher operating margins and a sharp increase in the net margins have helped the company record a 57% rise in net profits.

Continuing with its strategy of aggressive new product launches from its parent’s product portfolio, Aventis Pharma launched ‘Lantus’, world’s only 24-hour basal insulin in the anti – diabetics segment. Although, the company has separately disclosed Lantus’s performance in the current period, we expect it to be a top performer given its global success. ‘Lantus’ is likely to be one of the major growth drivers for the company going forward.

At Rs 506, Aventis Pharma is trading at a P/E of 13x its 9mFY04 earnings. Given the company's aggressive new product launches and the resultant new product portfolio, declining DPCO cover and focus on lifestyle segments, we remain positive about the long-term prospects of the company. However, although Aventis Pharma has been successfully charging a premium for its products, the sustainability of the same in view of the rising competition in the domestic market remains a concern as this could put pressure on its margins. For more on Aventis, view the Research Report

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