Abbott India - Q5FY14 Result Update - Brand driven revenue growth:: Centrum

Rating: Hold; Target Price: Rs1,810; CMP: Rs1,768; Upside: 2.4%



Brand driven revenue growth



We maintain Hold rating on Abbott India (AIL) with a revised target
price of Rs1,810 (earlier Rs1,870) based on 17xFY16 EPS of Rs106.4.
AIL’s revenues were in line with our expectations but EBIDTA and net
profit were lower due to overall increase in costs. The company
reported 18% revenue growth in the domestic market despite the NPPP
effect. We have revised our FY15 and FY16 EPS estimates downwards by
5% and 3% respectively. Key risks to our assumptions include higher
growth of its major brands in the domestic market and increase in
imported raw material prices with the depreciation of rupee.

$ Brand driven revenue growth: AIL’s revenues grew by 18%YoY to
Rs4.94bn from Rs4.20bn despite the NPPP effect. The company’s seven
major brands grew faster than the market growth rate of 6.2%. These
were Duphastone 6.9%, Thyronorm 12.8%, Vertin 13.3%, Duphalac 13.7%
and Digene 8.8%, Pediasure 22.5% and Pediasure Complete 18.8%. We
expect these brands to drive future growth of the company. AIL also
distributes Novo Nordisk’s insulin range of products in the domestic
market and derives marketing margin from them. The insulin range of
products is under price control.

$ Fall in margins may partially reverse: AIL’s EBIDTA margin fell by
70bpsYoY to 10.2% from 10.9% mainly due to the rise in overall costs.
Its material cost grew by 10bps to 57.0% from 56.9%. Personnel cost
increased by 20bps to 13.9% from 13.7% due to the award of annual
increments. Other expenses were up by 60bps to 19.0% from 18.4%. AIL’s
other income grew 47%YoY to Rs94mn from Rs64mn due to Rs7.2mn profit
on sale of residential property during the quarter. We expect AIL’s
margin to improve due to its strong brands and price increase in
April’14.

$ Decent growth in net profit: AIL’s net profit grew by 21%YoY to
Rs384mn from Rs317mn due to higher other income. Its two brands,
Thyronorm and Eptoin with collective revenues of Rs1.8bn, came under
price control in NPPP. The company has taken 6.3% increase in price
for price controlled products in April’14. AIL is a debt-free, cash
rich company with cash/share of Rs217.

$ Recommendation and key risks: We maintain Hold rating on the stock
with a target price of Rs1,810 based on 17x FY16E EPS of Rs106.4 with
an upside of 2.4% over the CMP. At the CMP of Rs1,768 the stock trades
at 20.3x FY15E EPS of Rs87.0, 16.6x FY16E EPS of Rs106.4 and 13.9x
FY17E EPS of Rs127.1. Key risks to our assumptions include higher
growth of its major brands in the domestic market and increase in
imported raw material prices with the depreciation of rupee.



Thanks & Regards

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