Abbott India - Initiating Coverage - Centrum

Initiating Coverage

Abbott India

Rating: Buy

Target Price: Rs1,860

CMP: Rs1,440

Upside: 29.2%

Turning science into caring

Abbott India (AIL) is a leading MNC pharma company with strong product portfolio in the domestic market. AIL’s seventeen brands appear in the list of top 300 products, which are likely to drive future growth. The company has major presence in anti diabetic, CNS, neutraceutical, gastrointestinal and women’s Health segments. The merger of Solvay Pharma (SPL) with the company in August’11 has improved sales and profitability. AIL is likely to get impacted by National Pharmaceutical Pricing Policy (NPPP) as two major brands will be subjected to the price control. It is debt-free cash rich company with cash per share of Rs153. We initiate coverage on the company with a Buy rating and target price of Rs1,860 (based on 20x CY14 EPS of Rs93.0).

m  Strong product portfolio: As per IMS-MAT March’13 data, 17 of the company’s brands appear in the list of top 300 products of which four are from SPL. The top 17 brands contribute ~32% of AIL’s revenues. We expect these brands to drive future growth.
m  Merger of Solvay Pharma:  In August’11, in line with the international merger, SPL merged with AIL. Two shares of SPL were exchanged for three shares of AIL. With this merger, AIL has entered into gynaec and gastro segments. We expect SPL’s four brands to deliver higher growth as they are outside price control.
m  Two major brands to be under price control: Currently, seven major products of AIL are under price control. Under the NPPP provisions Thyronorm and Eptoin would be under price control. These two brands have combined revenues of Rs2.65bn and hence the company will get adversely impacted.
m  Debt-free cash rich company: AIL continues to be a debt-free company. It had cash of Rs3.25bn (Rs153 per share) as on 31st December’12. We expect AIL to continue the debt-free status due to decent cash flow from operations and no major capex.
m  Initiate coverage with a Buy rating: We expect AIL to report 16% CAGR in revenues and 19% CAGR in net profit over the next 3 years from the strong growth of its brands in niche therapeutic segments and merger of SPL. At the CMP of Rs1,440, the stock trades at 18.8x CY13E EPS of Rs76.6 and 15.5x CY14E EPS of Rs93.0. We initiate coverage on the company with Buy rating and target price of Rs1,860 (based on 20x CY14E EPS of Rs93.0) with an upside of 29.2% over the next 12 months.

Thanks & Regards, 

-- 

�� -->