Sanofi India's Q4CY17 results (Outperformer) - In line quarter

Q4CY17 result highlights

• Revenue for the quarter stood higher at Rs6.7b (up 13% yoy; flat qoq) vs est of Rs6.6b. Mgt indicated that like to like domestic sales growth was 14% for the quarter and 4% for the year. Given the challenges faced by the company in H1CY17, the recovery in last two quarters has been fairly credible.
• GMs came in lower at 56.7% vs 60.3% in Q3CY17; while it was up 200bps yoy. SG&A costs grew sharply +12% yoy/qoq.
• Despite higher revenues impacted by lower GMs and higher expenses reported EBITDA came in at Rs1.3b (+25% yoy; -27% qoq) inline vs our est of Rs1.3b. Reported EBITDA margins for the quarter stood at 20% (27.5% in Q3CY17) broadly inline with our est of 20.2%.
• Tax rate stood higher at 39.6% (35% in Q3CY17) vs est of 35%. Resultant reported PAT came in lower at Rs760m (+50% yoy) vs est of Rs825mn
• The company declared a final dividend of Rs53/share translating into total CY17 dividend payout of Rs71/share.

Key positives: Higher revenues

Key negatives: lower GMs; higher SG&A cost; higher tax rate

Impact on financials: We maintain our CY18 earnings estimates and introduce CY19 earnings estimates

Valuations & view

A strong marketing presence in India, strategy to aggressively invest in growth, and strong presence in fast growing segments (diabetes and CVS) make Sanofi one of the more promising MNC pharma companies in India. We maintain Outperformer given attractive valuations and steady improvement in operating performance. The stock trades at 14.4x EV/ EBITDA and 25.6x CY19E PE, which are at sharp discount to those of MNC peers like Glaxo (~47.2x EV/ EBITDA; FY19E). Slowdown in exports and continued regulatory interventions in domestic market remain key risks.