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Sanofi India Buy Target Price: Rs2,672 : Centrum

Sanofi India

Buy

Target Price: Rs2,672

CMP: Rs2,321

Upside: 15.1%

New launches to drive growth

Sanofi India’s (SIL) results for Q4CY12 were below our expectations. The company reported 19%YoY growth in revenues, 110bps improvement in EBIDTA margin and 24%YoY growth in net profit. Sales growth was driven by the acquired neutraceutical brands of Universal Medicare (UMPL). The company has launched Combiflam Plus during the quarter. SIL is a debt-free company with cash/share of Rs186. We expect the growth momentum to be maintained due to strong growth of its brands and from new launches. We have a Buy rating for the scrip with a revised target price of Rs2672 (based on 24x CY13E EPS of Rs111.3).

m  Good revenue growth: SIL reported 19%YoY growth in revenues from Rs3.56bn to Rs4.23bn due to strong growth of its leading brands and the acquired brands of UMPL. Growth momentum is likely to be maintained due to the launch of new products.

m   Margin improvement by 110bps: SIL’s EBIDTA margin improved by 110bps YoY from 16.1% to 17.2% due to the reduction in material cost and other expenses. The company’s material cost declined by 40bps from 48.1% to 47.7% of revenues due to the change in product mix. SIL’s personnel cost increased by 30bps from 14.1% to 14.4% due to higher sales growth. Other expenses declined by 90bps from 21.6% to 20.7% of revenues. Other expenses were up by 290bps QoQ due to the launch expenses of Combiflam Plus.

m  Top 10 brands contribute 50% revenues:  As per IMS MAT-December’12, SIL’s top 10 brands contributed ~50% to its revenues. Growth rates for major brands were, Lantus 19.1%, Amaryl M 33.6% and Frisium 14.1%.

m  Combiflam Plus Launched: During Q4CY12, SIL launched Combiflam Plus for headache in the domestic market. This OTC product has higher margin and is likely to be the future growth driver for the company.

m  Effect of NPPP:  SIL’s four major brands, Combiflam, Lantus, Avil and Sofrasmycin are currently under DPCO and will continue under price control. Under NPPP, Clexane (Revenues Rs380mn) will come under price control.  SIL’s major brand Combiflam (Revenues Rs1.22bn) is likely to come out of price control. This is likely to benefit the company.

m  Valuations: We expect SIL to benefit from strong growth of its brands and of acquired UMPL products apart from the launch of new products. We have lowered our CY13 and CY14 EPS estimates by 2% and 1% respectively.  At the CMP of Rs2321, the stock trades at 20.8x CY13E EPS of Rs111.3 and 16.6x CY14E EPS of Rs139.5. We have Buy rating for the scrip with a revised target price of Rs2,672 (based on 24x CY13E EPS of Rs111.3) with 15.1% upside over CMP.

Thanks & Regards, 

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