MOSL: SANOFI INDIA (Buy)-Weak results-margin improvement is key
​Sanofi India: Weak results; margin improvement is key
(SANL IN, Mkt Cap USD1.5b, CMP INR4181, TP INR4850, 16% Upside, Buy)
- Sanofi India (SANL) reported weak 1QCY17 results. Revenue declined 9.1% YoY to INR5.5b (~8% below est.). EBITDA fell ~21% YoY to INR1b (24% below est.), with the margin contracting to 18.4% from 23.7% in 1QCY16. PAT of INR600m (-25.6% YoY) too missed our estimate by ~25% due to lower export volumes and an adverse impact of INR appreciation v/s euro.
- High-growth brands/new launches to drive revenues: Sales declined 9% YoY in 1QCY17. According to AIOCD, secondary sales growth for SANL stood at ~10% YoY. We expect the company's revenue growth to sustain at 12% over CY16-18, in line with industry growth, led by high growth in brands like Lantus, Combiflam, Allegra and Amaryl M, and new product launches.
- Lower margin attributed to high other expenses: EBITDA margin of ~18.4% was lower than our estimate of 22%, mainly due to high other expenses (+44% YoY). We expect EBITDA margin to normalize at 22-23% over CY16-18E (22.3% in CY16).
- Growth impacted by regulatory actions and demonetization: According to AIOCD, average industry growth was ~10.5% YoY in 1QCY17, and regulatory actions (ex-demonetization) will have a negative one-time impact of ~2% on SANL.
Sanofi India is engaged in the research, development, manufacture and production, of: (i) new and existing drugs, pharmaceuticals, haemaccel and biologicals; and, (ii) liquid injectibles, tablets, capsules, ointments, antibiotic powders, drops, syrups, Co.'s products include: Daonil, Avil, Soframycin, Combiflam, Tarivid, Streptase , Rifater and Rifadin INH, Rabipur, Claforan and Rulide (parenteral anti-infectives) Amaryl (oral anti-diabetic), Tavanic (anti-infective), Vaxcem Hib (Haemophilus Influenza type B (HIB) Vaccine), Morupar (measles, mumps, rubella (MMR) Vaccine), Insuman (human insulin) and Cardace-H.
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