Sanofi India Q2CY17 Result Update Rating - HOLD - Arihant Capital Markets Limited

Sanofi India Ltd. reported a 23% increase in PAT qoq but a fall of 14% yoy.

Sanofi India Ltd. posted a marginal decline in revenue of 1% yoy but an increase of 9% qoq. Gross sales and Profit before tax for the quarter were impacted due to down stocking in trade channels in anticipation of the GST regime.

EBITDA margins contracts:

EBITDA for the quarter fell by 20.3% yoy with a corresponding margin contraction of 509 bps. EBITDA margin for the quarter stood at 19%. This margin contraction was driven by adverse movements in inventories.

Overall expenses surges 5%:

Overall expenses stood at Rs 485 crore for the quarter under review, an increase of 5% per cent as against Rs 462 crore in the corresponding quarter of the previous year. Cost of material as a percentage of sales surged from 24.7% to 28.4% yoy. Depreciation and amortization expenses decreased to Rs 26 crore from Rs 30 crore in June quarter of 2016.

Employee benefit expenses increased from Rs 85.80 crore to Rs 94.50 crore yoy.

Other Income:

This quarter company reported Rs 28 crore of other income compared to Rs 16.4 crore for the same quarter in the previous year, an increase of 73%.

Valuation:

Sanofi had a weak H1, with an EBITDA decline of 21% YoY, which was negatively affected by lower export volumes, weak currency and NLEM pressure. However, some top products, such as Lantus,Insuman, Combiflam and line extensions of Amaryl, continue to do well. Further new launches like Toujeo should add to growth. About 21% of the company's domestic portfolio is already under price control. MNC like Sanofi have demonstrated significant resilience, as pickup in volume growth post price reduction has partially or in some cases to a large extent offset the price cuts in a short period of time. Indian Pharma market is expected to grow at 12-13% per annum over 5 years. We have maintained a conservative approach with growth estimates of 10% and have valued the stock at PE of 34x to its CY18E EPS of 131, with a Target Price of 4454. We have a HOLD rating on the stock.

Shares of Sanofi India Ltd was last trading in BSE at Rs.4165.1 as compared to the previous close of Rs. 4189.45. The total number of shares traded during the day was 48 in over 18 trades.

The stock hit an intraday high of Rs. 4200 and intraday low of 4165.1. The net turnover during the day was Rs. 201006.

Source : Equity Bulls

Keywords