Sanofi India - Q4CY13 Result Update - Strong margin improvement: Centrum

Rating: Buy; Target Price: Rs3,720; CMP: Rs2,632; Upside: 41.3%



Strong margin improvement



We maintain Buy rating on Sanofi India (SIL) and a target price of
Rs3,720 based on 23xDec'15 EPS of Rs161.5. SIL's results for Q4CY13
were in-line with our expectations. The company's revenue growth was
attributed to better export performance during the quarter, which
resulted in improved profitability. EBIDTA margin improved 610bpsYoY
despite NPPP and trade related issues. SIL has benefited from its
major brand Combiflam coming out of price control. Key risks to our
assumptions include slowdown in the domestic pharma market and in the
company's major brands.

$ Good revenue growth: SIL reported 16%YoY growth in revenues to
Rs4.88bn from Rs4.23bn due to better export performance during the
quarter. As per AIOCD AWACS MAT data, SIL's top 10 brands contributed
44% to its revenues. Seven of its top 10 brands grew faster than the
market growth rate of 6.1%. SIL markets Enterogermina of Sanofi
Synthlabo and Pentaxim vaccine of Sanofi Pasteur in the domestic
market. We expect these products to drive future growth of the
company.

$ EBIDTA grows by 610bps: SIL's EBIDTA margin grew by 610bps to 23.3%
from 17.2% due to significantly better export performance and strong
growth of its leading brands. The company's material cost declined by
240bpsYoY to 45.3% from 47.7% due to the change in product mix.
Personnel cost declined by 160bps to 12.8% from 14.4% and other
expenses went down by 210bps to 18.6% from 20.7%. SIL is likely to
benefit from its major brand Combiflam coming out of price control.

$ Net profit up 50%: SIL's net profit before EO items grew by 50%YoY
to Rs673mn from Rs448mn due to margin improvement. The company's other
income declined by 27%YoY to Rs118mn from Rs161mn. Its tax rate was up
marginally to 33.9% from 32.4% of PBT. Net profit after EO items
(Rs254mn from sale of non-trade investments) grew by 107%YoY to
Rs927mn from Rs448mn.

$ Recommendation and key risks: We expect the company to report
superior performance in the future due to its well-known brands, lower
exposure to price control and introduction of new products. We
maintain Buy rating and target price of Rs3,720 for SIL. Our target
price is based on 23x Dec'15 EPS of Rs161.5 with an upside of 41.3%
over CMP. Key risks to our estimates include slowdown of the domestic
pharma market and slower growth of its major brands.



Thanks & Regards

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