Abbott India - Revenue growth starts recovering - ICICI Securities

Abbott India Limited's (AIL) Q4FY21 performance was better than our estimates with revenue growing 14.0% YoY to Rs10.9bn (I-Sec: Rs10.2bn). EBITDA margin improved 440bps YoY to 18.8% (I-Sec: 18.4%) and adj. PAT grew 37.4% YoY to Rs1.5bn (I-Sec: Rs1.5bn). The strong performance was due to traction in key products with fall in COVID-19 cases. Near term pressures continue with rising cases but expect recovery with ongoing vaccination. We remain positive on the company considering its exposure exclusively in domestic formulations, strong balance sheet with deep cash reserves, high return ratios and strong brand equity built over the years. Maintain BUY with a revised target price of Rs18,497/share.

- Revenue growing; costs normalising: Revenue growth of 14.0% YoY was due to traction in key products and low base of last year. Declining COVID-19 cases in the quarter supported growth in the quarter. Despite recent surge in cases, we expect recovery in growth to continue with the ongoing vaccination. Gross cost grew 9.1% YoY but gross margin improved 250bps with higher revenue. Low growth of 4.2% YoY in employee cost supported margins. However, S,G&A expenses grew sharply at 21.2% QoQ with reversal of cost savings due to COVID-19 led lockdown which caused EBITDA margins to correct 330bps QoQ. Adj PAT grew 37.4% YoY with strong performance despite lower other income. Company announced a dividend of Rs275/share including a special dividend of Rs155/share for the next year.

- Key products performance: As per AIOCD data the AIL has reported a growth of 1.2% in its key products and even Novo portfolio has reported a growth of 1.2%. Thyronorm, Udiliv, Duphalac, Vertin, Cremaffin Plus and Digene have reported YoY growth of 5.8%, 15.8%, 15.7%, 13.1%, 21.3% and 6.9% respectively for the quarter. Duphaston reported a steep decline of 22.4% YoY. Cremaffin and Claribid reported a YoY decline of 1.7% and 31.4% respectively. Amongst the Novo portfolio, Actrapid and Tresiba have reported strong YoY growth of 22.1% and 12.6% respectively. Novomix and Novorapod have reported a YoY growth of 7.7% and 2.6% respectively. Mixtard, Victoza and Ryzodeg have declined 2.2%, 10.1% and 18.8% YoY respectively.

- Outlook: We believe that current quarter expenses is a reflection of a normalised quarter and strong revenue growth in the coming quarters should support margins in the range of ~21-22%. Overall, we expect 9.8% revenue and 16.4% PAT CAGR over FY21-23E. Minimal capex requirement would help generate healthy FCF of Rs18bn over FY22E-FY23E.

- Valuations and risks: We raise our sales and earnings estimates by 1-2% and 0-2% respectively for FY22E-FY23E to reflect higher growth in key brands. Maintain BUY with a revised target price of Rs18,497/share based on 42xFY23E EPS (earlier: Rs18,195/share). Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company.

Valuations

We expect AIL to witness an earnings CAGR of 16.4% over FY21-FY23E driven by revenue CAGR of 9.8% and EBITDA margin expansion of 100bps to 22.4% in FY23E on a high base of FY21. Return ratios (RoE and RoCE) would improve with margin expansion led by growth and operating leverage. The stock currently trades at valuations of 42.8xFY22E and 36.4xFY23E earnings and EV/EBITDA multiple of 31.3xFY22E and 26.5xFY23E. We remain positive on the long-term outlook considering the company's strong growth trajectory, established brand franchise, healthy return profile and rich cash reserves. We maintain our BUY rating on the stock with a revised target price of Rs18,497/share based on 42xFY23E earnings (earlier: Rs18,195/share).

Shares of ABBOTT INDIA LTD. was last trading in BSE at Rs.16041.45 as compared to the previous close of Rs. 16224.75. The total number of shares traded during the day was 2353 in over 1136 trades.

The stock hit an intraday high of Rs. 16299.9 and intraday low of 15919.45. The net turnover during the day was Rs. 37936046.

Source : Equity Bulls

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