MOSL: SANOFI INDIA (Buy)-Favorable base, stable cost translate into a strong performance

Sanofi India: Favorable base, stable cost translate into a strong performance

(SANL IN, Mkt Cap USD1.9b, CMP INR5613, TP INR6590, 17% Upside, Buy)

• Healthy revenue growth, stable operating cost drive strong PAT growth: Sanofi’s (SANL) 2QCY18 revenue increased strongly by ~15% YoY to INR6.4b (est. of INR6.8b), led by a low base of past year and better traction in existing products. Gross margin improved ~90bp YoY to ~57% led by a better product mix. EBITDA grew ~43% YoY to INR1.6b (est. of INR1.5b), with the margin expanding ~480bp YoY (+230bp QoQ) to 24.1% due to strong revenue growth and stable operating cost. Accordingly, PAT increased ~35% YoY to INR996m (est. of INR922m).
• Brands in respiratory, cardiac and anti-diabetic drive performance: Growth for the quarter was largely driven by volumes and new launches. Prices continued declining marginally on a YoY basis. Growth in the chronic segment of the portfolio (~48% of total sales) was better than that in the acute segment. The performance of the top 10 brands (which contribute ~ 55% of total sales) was impressive. Specifically, Avil in respiratory therapy, Cardace in Cardiac therapy and Lantus in anti-diabetic therapy grew at a faster rate, driving overall sales growth.