Rating: Buy; Target Price: Rs3,660; CMP: Rs2,943; Upside: 24.4%
Impacted by NPPA notification
We maintain Buy on Sanofi India (SIL) with a revised target price of
Rs3,660 (earlier Rs3,910) based on 23xJune’16E EPS of Rs159.0. SIL’s
revenues for Q2CY14 were above our expectation but net profit was
below our expectations. The company reported good revenue growth of
16% YoY and 70bps decline in EBIDTA margin due to sharp increase in
material cost. SIL was impacted by recent NPPA notification bringing
three of its major brands under price control impacting value loss of
Rs1.39bn at MRP level. Key risks to our estimates include slowdown of
the domestic pharma market and the company’s additional brands coming
under price control.
$ Good revenue growth: SIL reported 16%YoY growth in revenues to
Rs5.06bn from Rs4.35bn during the quarter. The company markets Sanofi
Synthelabo and Sanofi Pasteur’s products in the domestic market. As
per IMS MAT data of June’14, SIL’s top 10 brands contributed ~54% to
revenues. Four of its top 10 brands grew faster than the market growth
rate of 9.8%. These were Lantus 19.3%, Amaryl 10.8%, Amaryl M 29.7%
and Frisium 16.1%. We expect these brands to drive future growth of
the company.
$ EBIDTA margin declines by 70bps YoY: SIL’s EBIDTA margin declined by
70bpsYoY to 19.4% from 20.1% due to sharp rise in material cost. The
company’s material cost increased by 300bpsYoY to 48.7% from 45.7% due
to the change in product mix. Personnel cost declined by 40bps to
13.9% from 14.3% and other expenses went down by 190bps to 18.0% from
19.9%. We expect pressure on margins as its three major brand prices
have been reduced by recent NPPA provision affecting Rs1.39bn at MRP
level and Rs1.12bn at the manufacturer’s level.
$ Net profit up 12%: The company’s PBT grew at a slower pace by 10%YoY
to Rs872mn from Rs791mn due to decline in margins. SIL’s net profit
grew by 12%YoY to Rs575mn from Rs512mn due to lower tax provision. The
company’s tax rate declined to 34.1% from 35.3% of PBT. We expect
improvement in net profit from Q3CY15 onwards as it can increase the
prices of the three brands up to 10% per annum, which were impacted by
the recent NPPA notification.
$ Recommendation and key risks: We expect the company to report
superior performance in future due to its well-known brands and new
product introductions. We have revised our CY14 and CY15 EPS estimates
downwards by 15% and 8% respectively in view of reduction in prices of
its three major brands. We maintain Buy rating for SIL with revised
target price of Rs3,660. Our target price is based on 23x June’16E EPS
of Rs159.0 with an upside of 24.4% over CMP. Key risks to our
estimates include slowdown of the domestic pharma market and company’s
additional brands coming under price control.
Thanks & Regard
--
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Impacted by NPPA notification
We maintain Buy on Sanofi India (SIL) with a revised target price of
Rs3,660 (earlier Rs3,910) based on 23xJune’16E EPS of Rs159.0. SIL’s
revenues for Q2CY14 were above our expectation but net profit was
below our expectations. The company reported good revenue growth of
16% YoY and 70bps decline in EBIDTA margin due to sharp increase in
material cost. SIL was impacted by recent NPPA notification bringing
three of its major brands under price control impacting value loss of
Rs1.39bn at MRP level. Key risks to our estimates include slowdown of
the domestic pharma market and the company’s additional brands coming
under price control.
$ Good revenue growth: SIL reported 16%YoY growth in revenues to
Rs5.06bn from Rs4.35bn during the quarter. The company markets Sanofi
Synthelabo and Sanofi Pasteur’s products in the domestic market. As
per IMS MAT data of June’14, SIL’s top 10 brands contributed ~54% to
revenues. Four of its top 10 brands grew faster than the market growth
rate of 9.8%. These were Lantus 19.3%, Amaryl 10.8%, Amaryl M 29.7%
and Frisium 16.1%. We expect these brands to drive future growth of
the company.
$ EBIDTA margin declines by 70bps YoY: SIL’s EBIDTA margin declined by
70bpsYoY to 19.4% from 20.1% due to sharp rise in material cost. The
company’s material cost increased by 300bpsYoY to 48.7% from 45.7% due
to the change in product mix. Personnel cost declined by 40bps to
13.9% from 14.3% and other expenses went down by 190bps to 18.0% from
19.9%. We expect pressure on margins as its three major brand prices
have been reduced by recent NPPA provision affecting Rs1.39bn at MRP
level and Rs1.12bn at the manufacturer’s level.
$ Net profit up 12%: The company’s PBT grew at a slower pace by 10%YoY
to Rs872mn from Rs791mn due to decline in margins. SIL’s net profit
grew by 12%YoY to Rs575mn from Rs512mn due to lower tax provision. The
company’s tax rate declined to 34.1% from 35.3% of PBT. We expect
improvement in net profit from Q3CY15 onwards as it can increase the
prices of the three brands up to 10% per annum, which were impacted by
the recent NPPA notification.
$ Recommendation and key risks: We expect the company to report
superior performance in future due to its well-known brands and new
product introductions. We have revised our CY14 and CY15 EPS estimates
downwards by 15% and 8% respectively in view of reduction in prices of
its three major brands. We maintain Buy rating for SIL with revised
target price of Rs3,660. Our target price is based on 23x June’16E EPS
of Rs159.0 with an upside of 24.4% over CMP. Key risks to our
estimates include slowdown of the domestic pharma market and company’s
additional brands coming under price control.
Thanks & Regard
--
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