MOSL: SANOFI INDIA (Buy)-Revenue largely in-line-margin miss due to one-off

Sanofi India: Revenue largely in-line; margin miss due to one-off

(sanl IN, Mkt Cap USD1.7b, CMP INR4825, TP INR5600, 16% Upside, Buy)

• Sanofi’s (SANL) 4QCY17 revenue increased ~13% YoY to INR6.7b (~2.8% miss). Revenue growth adjusted for GST was 14%. EBITDA rose 25% YoY to INR1.3b (8.8% miss), with the margin expanding ~190bp YoY to 20%. SANL incurred one-time expense of INR162m for abundant precaution (related to legal case), adjusting for which margin would have been 22.5%. PAT increased 50% YoY to INR760m, led by healthy revenue growth and margin improvement. For CY17, sales, EBITDA and PAT stood at INR24.9b (+5.5% YoY), INR5.4b (+1.7% YoY) and INR3.3b (+9.8% YoY), respectively.
• High-single-digit revenue growth, coupled with margin improvement: According to AIOCD, secondary sales growth for SANL stood at ~9.3% YoY, in line with industry (+9.5% YoY). The company’s key therapeutic areas grew strongly YoY during the quarter: Anti-Diabetic portfolio grew by 14%, Vaccines by 22% and Respiratory by 19%. High growth in brands like Lantus, Combiflam, Allegra and Amaryl M, and new product launches should drive SANL’s revenue growth, in our view.
• Higher margins attributed to lower raw material and employee costs: EBITDA margin expanded to 20% in 4QCY17 (below est. of ~21.4%, primarily due to one-time expense) from 18% in 4QCY16, mainly on account of lower raw material expense (-200bp YoY as % of sales) and employee cost (-300bp YoY), partly offset by higher other expenditure (+200bp YoY). We expect EBITDA margin to normalize at 21-23% over CY16-19E (22.3% in CY16).