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MOSL: SANOFI INDIA (Buy)-Execution superiority reflecting in earnings

Sanofi India: Execution superiority reflecting in earnings

(SANL IN, Mkt Cap USD1.9b, CMP INR5631, TP INR6930, 23% Upside, Buy)

• Outperformance driven by robust revenue growth: Sales increased 16% YoY to INR7.2b (our estimate: INR6.8b) in 1QCY19. Gross margin shrank 250bp YoY to 57% due to the change in the product mix. However, EBITDA margin contracted at a much lower rate of 30bp YoY to 21.4% (our estimate: 20%), supported by lower other expenses (-110bp YoY to 21.2% of sales) and employee cost (-110bp YoY to 14.4%). Absolute EBITDA increased 14% YoY to INR1.6b (our estimate: INR1.4b). PAT grew 12.6% YoY to INR929m (our estimate: INR828m).
• Anti-diabetic, Cardiac and Neuro take center stage: Revenue growth was largely driven by the Anti-Diabetic (~23% of sales) portfolio, particularly by its top brand (rank-1) Lantus (+24% YoY). According to the AIOCD, secondary sales growth in Anti-Diabetic stood at 24% YoY for the quarter. SANL also maintained momentum in Cardiac (15% of sales) and Neuro (7% of sales) with secondary sales growth of 16% YoY and 18% YoY, respectively. However, growth was somewhat offset by the muted performances at Vaccines (+4.7% YoY; 12% of sales) and Respiratory (+1.6% YoY; 11% of sales). Notably, the top vaccines brand Hexaxim (rank 5) was down 16% YoY, while the top respiratory brand Avil (rank 8) was down 23% YoY. Allegra (rank-2), however, grew by 14% YoY and supported respiratory therapy growth.