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 INR4209, TP INR4820, 15% Upside, Buy)
- Sanofi India (SANL) reported weak 2QCY17 results. Revenue declined 1.2% YoY to INR6b (~10.6% miss). EBITDA declined ~21% YoY to INR1.2b (18.4% miss), with the margin coming in at 19.2% v/s 24% in the year-ago period. PAT too fell 13.6% YoY to INR737m (~16% miss). The muted operational performance can mainly be ascribed to down-stocking in trade channel in anticipation of GST implementation.
- Low-single-digit revenue decline coupled with weak margins: SANL’s sales declined 1.2% YoY in 2QCY17. According to AIOCD, secondary sales growth for the company stood at ~14% YoY, higher than average industry growth of 7.6%. We expect SANL’s revenue growth to sustain at 11% over CY16-18E, in line with industry growth. High growth of brands like Lantus, Combiflam, Allegra and Amaryl M, along with new product launches, should drive SANL’s revenue growth.
- Lower margins attributed to high other expenses: EBITDA margin contracted to ~19.2% in 2QCY17, lower than our estimate of 21%, mainly on account of high other expenses (+870bp YoY as % of sales), offsetting lower raw material costs (-510bp YoY as % of sales). We expect EBITDA margin to normalize at 21-22% over CY16-18E (22.3% in CY16).
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
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