Sanofi India's Q4CY18 results (Outperformer) - Soft quarter

Q4CY18 result highlights

• Revenue for the quarter was Rs7.26b (+8.4% yoy) in-line with est. Mgt indicated that like to like sales have grown +13% for CY18.
• Gross margins came much lower at 53.8% vs 55.9%/56.7% in Q3CY18/Q4CY17. This has, in turn, depressed the EBITDA margins for the quarter. GMs for CY18 have been 55.8% vs 56.3% in CY17. We believe sharp INR depreciation during the year have likely negatively impacted the GMs during the year.
• Staff costs grew 14% while SGA was flat yoy for the quarter.
• Reported EBITDA came in lower at Rs1.37b (+2% yoy) below est of Rs1.54b. EBITDAM of 18.9% vs 20% booked in Q4FYCY17 and lower  than est of 21.3%. Miss was primarily driven by lower GMs.
• Other income came lower at Rs194m vs est Rs249m. Tax rate was at 39.4%vs est of 37%.
• PAT came lower at Rs793mn (+4% yoy) vs est of Rs963m

Key positives: Flat SGA

Key negatives: Lower GMs and lower other income

Impact on financials: We maintain our CY19/CY20 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 17.3x EV/ EBITDA and 27.3x CY20E PER, which are at discount to those of MNC peers like Glaxo. Slowdown in exports and continued regulatory interventions in domestic market remain key risks.​