3QCY2017 Result Update | Pharmaceutical
November 20, 2017
Sanofi India
NEUTRAL
CMP
`4,007
Performance Highlights
Target Price
-
Y/E Dec. (` cr)
3QCY2017 2QCY2017
% chg (qoq) 3QCY2016
% chg (yoy)
Investment Period
12 months
Net sales
627
556
12.7
597
5.0
Other income
62
73
(15.7)
56
9.8
Stock Info
Operating profit
Sector
Pharmaceutical
143
71
102.3
105
36.3
Market Cap (` cr)
10,328
Adj. Net profit
116
74
57.8
83
40.3
Net debt (` cr)
(519)
Source: Company, Angel Research
Beta
0.5
For 3QCY2017, Sanofi India posted results which were above expectations on all
52 Week High / Low
4,930/3,901
fronts. The sales came in at `627cr v/s. `590cr expected, registering a yoy growth
Avg. Daily Volume
2,069
of 5.0%. On the operating front, the EBITDA margin came in at 22.8% (15.7%
Face Value (`)
10
expected) v/s. 17.6% in 3QCY2016. GPM (Gross Profit Margin) was better at
BSE Sensex
33,343
50.5% v/s. 48.3% in 3QCY2016, whereas, the EBIDTA margin was higher, despite
Nifty
10,284
employee expenses rose by 3.5% yoy. Consequently, the Adj. PAT came in at
Reuters Code
SANO.BO
`116cr v/s. `83cr in 3QCY2016, a yoy growth of 40.3%. This was against the
Bloomberg Code
SANL@IN
expectations of `77cr. We maintain our Neutral rating.
Results higher than expectations on all fronts: For 3QCY2017, Sanofi India
Shareholding Pattern (%)
posted results which were above expectations on all fronts. The sales came in at
Promoters
60.4
`627cr v/s. `590cr expected, registering a yoy growth of 5.0%. On the operating
MF / Banks / Indian Fls
18.0
front, the EBITDA margin came in at 22.8% (15.7% expected) v/s. 17.6% in
FII / NRIs / OCBs
16.0
3QCY2016. GPM (Gross Profit Margin) was better at 60.3% v/s. 51.0% in
Indian Public / Others
5.6
3QCY2016, whereas, the EBIDTA margin was higher, despite employee expenses
rose by 3.5% yoy. Consequently, the Adj. PAT came in at `116cr v/s. `83cr in
Abs. (%)
3m 1yr
3yr
3QCY2016, a yoy growth of 40.3%. This was against the expectations of `77cr.
Sensex
6.7
27.1
18.3
Outlook and valuation: We expect net sales to post 10.6% CAGR to `2,692cr
Sanofi India
12.3
7.2
29.4
and EPS to register 12.8% CAGR to `163.9 over CY2016-18E. At current levels,
stock is trading at 27.4x its CY2018E earnings. We maintain our Neutral rating.
Key financials
3-year price chart
Y E Dec (` cr)
CY2015
CY2016
CY2017E
CY2018E
Net Sales
2,049
2,206
2,411
2,698
% chg
9.3
7.7
9.3
11.9
Net Profit
264.9
296.5
348.7
377.1
% chg
34.4
11.9
17.6
8.1
EPS (`)
115.2
128.9
151.6
163.9
EBITDA (%)
15.4
16.6
18.8
18.8
P/E (x)
38.9
34.8
29.6
27.4
RoE (%)
19.3
21.6
25.4
27.5
14.8
17.1
22.4
25.8
Source: Company, Angel Research
RoCE (%)
P/BV (x)
6.3
5.9
4.6
3.7
EV/Sales (x)
4.8
4.4
3.8
3.2
30.9
26.7
20.4
17.1
EV/EBITDA (x)
Sarabjit Kour Nangra
Source: Company, Angel Research; Note: CMP as of November 17, 2017
+91 22 3935 7800 Ext: 6806
Please refer to important disclosures at the end of this report
1
Sanofi India | 3QCY2017 Result Update
Exhibit 1: 3QCY2017 performance
Y/E Dec (` cr)
3QCY2017
2QCY2017
% chg (qoq)
3QCY2016
% chg (yoy)
9MCY17
9MCY16
% chg yoy
Net sales
627
556
12.7
597
5.0
1,695
1,693
0.1
Other income
62
73
(15.7)
56
9.8
191
173
10.1
Total income
688
629
9.4
653
5.4
1,886
1,866
1.1
PBIDT
143
71
102.3
105
36.3
275
304
(9.7)
OPM (%)
22.8
12.7
17.6
16.2
18.0
Interest
0.3
0.0
0.3
0
0
Depreciation & amortization
26
26
0.8
27
(4.5)
77
81
(5.2)
PBT & exceptional items
179
118
50.9
134
33.4
389
396
(1.9)
Less : Exceptional items
0
0
0
0
0
Profit before tax
179
118
50.9
134
33.4
389
396
(1.9)
Provision for taxation
63
45
40.1
51
22.8
139
144
(3.6)
Net profit
116
74
57.8
83
40.3
250
252
(0.7)
Adj net profit
116
74
57.8
83
40.3
250
252
(0.7)
EPS (`)
50.6
32.0
36.0
108.7
109.4
Source: Company, Angel Research
Exhibit 2: 3QCY2017 - Actual Vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net sales
627
590
6.2
Other income
62
56
9.8
Operating profit
143
93
54.4
Tax
63
41
51.3
Net profit
116
77
50.8
Source: Company, Angel Research
Revenue growth better than expectation
The sales came in at `627cr v/s. `590cr expected, posting a yoy growth of 6.0%,
mainly on the back of the GST, and much better than our expectations. According
to AIOCD, secondary sales growth for Sanofi India Ltd., stood at 6% YoY,
higher than industry, which saw flattish growth of 1%. The company’s key
therapeutic areas posted strong growth during the quarter.
Exhibit 3: Sales trend
Source: Company, Angel Research
November 20, 2017
2
Sanofi India | 3QCY2017 Result Update
OPM expands to 22.8%: On the operating front, the EBITDA margin came in at
22.8% (15.7% expected) v/s. 17.6% in 3QCY2016. GPM (Gross Profit Margin) was
better at 60.3% v/s. 51.0% in 3QCY2016, whereas, the EBIDTA margin was higher,
despite employee expenses rose by 3.5% yoy.
Exhibit 4: OPM trend
Source: Company, Angel Research
Bottom-line much higher than estimates: Consequently, the Adj. PAT came in
at `116cr v/s. `83cr in 3QCY2016, a yoy growth of 40.3%. This was against the
expectations of `77cr. Other income at `62cr, was up 9.8% yoy.
Exhibit 5: Adj. Net Profit trend
S
(`cr)
November 20, 2017
3
Sanofi India | 3QCY2017 Result Update
Recommendation rationale
Focus on top-line growth: Sanofi recorded revenue CAGR of 12.6% to `2,206cr
over CY2010-16. The growth was impacted by a lower-than-expected growth in
domestic formulations and loss of distribution rights of Rabipur vaccine. Going
forward, in order to grow in-line with the industry’s average growth rate in the
domestic segment, the company has rolled out a project - Prayas, an initiative to
increase its penetration in rural areas. Under the project, the company would
launch low-priced products in the anti-infective and NSAID therapeutic segments
and increase its field force. Sanofi also launched CVS and vaccine products in the
domestic market post the acquisition of Shantha Biotech by its parent company.
Further, during CY2011, the company acquired the nutraceutical business of
Universal Medicare Pvt. Ltd, which led the company’s foray into the nutraceutical
business, thus aiding it in diversifying and boosting overall growth of its domestic
formulation business. We expect the company’s net sales to log 13.9% CAGR
over CY2016-18, mainly driven by domestic formulation.
Valuation: We expect net sales to post 10.6% CAGR to `2,698cr and EPS to
register 12.8% CAGR to `163.9 over CY2016-18E. At current levels, the stock is
trading at 29.6x and 27.4x its CY2017 and CY2018E earnings respectively. Given the
rich valuations, we maintain our Neutral rating.
Exhibit 6: Key assumptions
CY2017E
CY2018E
Net sales growth (%)
9.3
11.9
Growth in employee expenses (%)
9.3
11.9
Operating margins (%)
18.8
18.8
Net profit growth (%)
17.6
8.1
Capex (` cr)
80.0
80.0
Source: Company, Angel Research
Exhibit 7: One-year forward P/E
Source: Company, Angel Research
November 20, 2017
4
Sanofi India | 3QCY2017 Result Update
Exhibit 8: Recommendation summary
Company
Reco.
CMP Tgt Price Upside
FY2019E
FY17-19E
FY2019E
PE
EV/Sales
EV/EBITDA
RoCE
RoE
(`)
(`)
(%)
CAGR in EPS (%)
(x)
(x)
(x)
(%)
(%)
Alembic Pharma
Buy
514
600
16.8
21.5
2.5
12.9
5.7
20.6
18.4
Aurobindo Pharma
Buy
708
823
16.3
13.8
2.1
9.6
14.2
25.3
22.7
Cadila Healthcare
Reduce
446
411
(7.9)
21.7
3.5
17.3
18.9
16.5
22.2
Cipla
Sell
609
426
(24.1)
25.0
2.7
16.0
39.3
10.9
13.1
Dr Reddy's
Reduce
2,325
2,040
(12.3)
22.8
2.8
13.7
18.5
10.8
12.4
Dishman Pharma
Under Review
301
-
-
19.3
2.7
11.5
23.3
4.5
4.4
GSK Pharma
Sell
2,511
2000
(20.4)
51.4
6.4
37.7
19.3
25.8
23.5
Indoco Remedies
Sell
267
153
(42.8)
16.7
2.1
14.9
16.2
10.1
14.5
Ipca labs
Neutral
529
-
-
22.1
1.7
11.2
24.7
12.4
11.0
Lupin
Buy
829
1,091
31.6
16.7
2.1
9.7
(6.6)
13.7
13.7
Sanofi India*
Neutral
4,485
-
-
27.4
3.2
17.1
12.8
25.8
27.5
Sun Pharma
Accumulate
517
558
7.9
20.9
3.5
15.4
(12.9)
12.3
15.2
Source: Company, Angel Research, *-Note December ending company
Company Background
Sanofi, a leading global pharmaceutical company, operates in India through four
entities - Sanofi India, Sanofi-Synthelabo (India) Ltd, Sanofi Pasteur India Private
Ltd and Shantha Biotechnics. Sanofi India focuses its activities on seven major
therapeutic areas, namely
- Cardiovascular diseases, Metabolic Disorders,
Thrombosis, Oncology, Central Nervous System disorders, Internal Medicine and
Vaccines. Predominately a domestic company, the company exports to
semi-regulated markets, exports of ~`500cr, contributed around 26% of sales in
CY2016E.
November 20, 2017
5
Sanofi India | 3QCY2017 Result Update
Profit & loss statement
Y/E Dec. (` cr)
CY13
CY14
CY15
CY16 CY17E CY18E
Gross sales
1,745
1,916
2,093
2,253
2,467
2,755
Less: Excise duty
38
41
44
47
56
57
Net sales
1,707
1,875
2,049
2,206
2,411
2,698
Other operating income
102
103
144
162
162
162
Total operating income
1,809
1,978
2,193
2,369
2,574
2,860
% chg
14.1
9.3
10.9
8.0
8.7
11.1
Total expenditure
1,411
1,639
1,734
1,841
1,957
2,190
Net raw materials
820
974
1,012
1,065
1,109
1,241
Other mfg costs
82
93
106
115
125
140
Personnel
242
288
333
359
393
439
Other
267
283
283
302
330
369
EBITDA
296
236
315
366
455
509
% chg
27.0
7.3
8.3
9.3
10.3
11.3
(% of Net Sales)
17.3
12.6
15.4
16.6
18.8
18.8
Dep. & amortisation
92
97
113
131
147
155
EBIT
203
140
202
234
308
354
% chg
42.4
5.7
6.7
7.7
8.7
9.7
(% of Net Sales)
11.9
10.2
11.2
12.2
13.2
14.2
Interest & other charges
0
-
-
-
-
-
Other income
58
64
135
71
81
81
(% of PBT)
15.9
18.6
19.6
20.6
21.6
22.6
Share in profit of Asso.
-
-
-
-
-
1.0
Recurring PBT
363
307
481
468
551
597
% chg
38.7
3.8
4.8
5.8
6.8
7.8
Extraordinary Exp./(Inc.)
PBT (reported)
363
307
481
468
551
597
Tax
123.3
109.0
159.4
169.1
199.6
216.2
(% of PBT)
33.9
35.6
33.1
36.2
36.2
36.2
PAT (reported)
240
198
322
299
352
381
Extra-ordinary items
(25)
(67)
56
-
-
-
PAT after MI
266
264
321
297
349
377
(reported)
ADJ. PAT
240
197
265
297
349
377
% chg
35.4
(17.8)
34.4
11.9
17.6
8.1
(% of Net Sales)
15.6
14.1
15.7
13.4
14.5
14.0
Basic EPS (`)
104
86
115
129
152
164
Fully Diluted EPS (`)
104
86
115
129
152
164
% chg
35.4
(17.8)
34.6
11.9
17.6
8.1
November 20, 2017
6
Sanofi India | 3QCY2017 Result Update
Balance sheet
Y/E Dec (` cr)
CY13
CY14
CY15
CY16 CY17E CY18E
SOURCES OF FUNDS
Equity share capital
23
23
23
23
23
23
Preference Capital
-
-
-
-
-
-
Reserves & surplus
1,324
1,463
1,604
1,713
2,222
2,759
Shareholders funds
1,347
1,486
1,627
1,736
2,245
2,782
Long term provisions
25
32
40
40
40
40
Other long term liabilities
-
-
-
-
-
-
Total loans
-
-
-
-
-
-
Total liabilities
1,372
1,518
1,668
1,778
2,288
2,826
APPLICATION OF FUNDS
Gross block
1,075
1,195
1,349
1,427
1,507
1,587
Less: Acc. Depreciation
409
506
619
750
897
1,051
Net block
666
690
730
677
610
535
Goodwill
125
125
125
125
125
125
Capital Work-in-Progress
43
43
43
43
43
43
Long term loan and adv.
62
106
262
129
129
129
Investments
0.2
0.2
0.2
0.2
0.2
0.2
Current assets
947
1,263
1,245
1,567
2,206
2,906
Cash
264
469
572
559
1,061
1,625
Loans & advances
219
196
337
363
396
444
Other
464
598
336
646
748
837
Current liabilities
435
656
617
668
730
817
Net current assets
512
607
628
900
1,476
2,089
Deferred tax assets
(37)
(54)
(120)
(97)
(97)
(97)
Total assets
1,372
1,518
1,668
1,778
2,287
2,826
November 20, 2017
7
Sanofi India | 3QCY2017 Result Update
Cash flow statement
Y/E Dec. (` cr)
CY13 CY14 CY15 CY16 CY17E
CY18E
Profit before tax
278
291
292
293
294
295
Depreciation
92
97
113
131
147
155
(Inc)/Dec in Working Capital
236
(64)
73
152
74
49
Less: Other income
102
66
67
68
69
70
Direct taxes paid
89
93
94
95
96
97
Cash Flow from Operations
415
164
317
414
350
332
(Inc.)/Dec.in Fixed Assets
(186)
(120)
(154)
(78)
(80)
(80)
(Inc.)/Dec. in Investments
0
0
-
-
-
-
Other income
102
66
67
68
69
70
Cash Flow from Investing
(84)
41
42
43
44
45
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
-
-
-
-
-
-
Dividend Paid (Incl. Tax)
(104)
(104)
(104)
(160)
(160)
(160)
Others
(393)
102
(153)
(310)
269
347
Cash Flow from Financing
(496)
(1)
(257)
(470)
108
187
Inc./(Dec.) in Cash
(164)
204
103
(13)
502
564
Opening Cash balances
429
264
469
572
559
1,061
Closing Cash balances
264
469
572
559
1,061
1,625
November 20, 2017
8
Sanofi India | 3QCY2017 Result Update
Key ratios
Y/E Dec.
CY13
CY14
CY15
CY16
CY17E
CY18E
Valuation Ratio (x)
P/E (on FDEPS)
43.1
52.4
38.9
34.8
29.6
27.4
P/CEPS
28.9
28.6
23.8
24.1
20.8
19.4
P/BV
7.7
7.0
6.3
5.9
4.6
3.7
EV/Sales
5.9
5.3
4.8
4.4
3.8
3.2
EV/EBITDA
34.1
41.7
30.9
26.7
20.4
17.1
Per Share Data (`)
EPS (Basic)
104.1
85.6
115.2
128.9
151.6
163.9
EPS (fully diluted)
104.1
85.6
115.2
128.9
151.6
163.9
Cash EPS
155.4
156.7
188.7
186.0
215.4
231.2
DPS
33.0
33.0
33.0
68.0
68.0
68.0
Book Value
584.8
645.2
707.4
754.6
975.9
1,209.6
Returns (%)
RoCE (Pre-tax)
15.7
10.2
14.8
17.1
22.4
25.8
Angel ROIC (Pre-tax)
22.4
14.6
21.1
24.4
32.0
36.8
ROE
18.8
14.4
19.3
21.6
25.4
27.5
Turnover ratios (x)
Inventory / Sales (days)
31
28
26
24
22
20
Receivables (days)
9
8
7
7
7
6
Payables (days)
24
21
20
19
18
16
November 20, 2017
9
Sanofi India | 3QCY2017 Result Update
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
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the contrary view, if any.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
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Disclosure of Interest Statement
Sanofi India
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
10
