Event update: Sanofi India (Outperformer) - Annual Report Takeaways

Sanofi India recently released its CY18 Annual Report. Below are the key takeaways.

Domestic market – Diabetes continues to be the key growth driver: Net domestic revenues grew 6% yoy in CY18. Sanofi’s market share was at 1.6% with 4 products – Lantus, Combiflam, Amaryl and Allegra – in top 100 pharma brands in the market. Diabetes continues to be the largest therapy segment.  The Insulin portfolio grew in double digits through the brands Lantus, Insuman and Apidra. Lantus grew 16% and continues to be the leading brand in basal analog insulin market. Insulin portfolio has been strengthened with launch of next generation basal insulin Toujeo. The consumer health business has been structured into 3 segments - Allergy, Pain Relief and Vitamin, Mineral and Supplements (VMS).

Exports – Medium term outlook gets a bit hazy: The exports business grew 25% during the year and accounted for 30% of consolidated revenues. A significant part of export business caters to the European Generics business of the Sanofi group. In Oct 2018, PE firm Advent signed an agreement to acquire Sanofi’s EU generic business. Advent will keep sourcing products, as per its requirements, from Sanofi India during the duration of the agreement. This development enhances the risk for Sanofi’s export business as any unforeseen change in the demand scenario from Advent may pose risk to this business in next 5 years. After completion of 5 years, this business may face competition from other suppliers that Advent may opt for. In light of this development, Sanofi India will review its longer term manufacturing strategy

CY19 outlook: Domestic business growth is likely to be in line with addressable market growth. Export volumes likely to be maintained.

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. Post 17% PAT growth in CY18, we estimate 16% CAGR PAT growth over CY18-20. While there is some uncertainty on the exports outlook over the medium term, we maintain Outperformer given the strong domestic business model and attractive valuations (15x EV/EBTIDA CY20E / 26x PER CY20E) – at a discount to peers like Glaxo.