1QCY2016 Result Update | Pharmaceutical
May 5, 2016
Sanofi India
ACCUMULATE
CMP
`4,410
Performance Highlights
Target Price
`4,738
Y/E Dec. (` cr)
1QCY2016 4QCY2015
% chg (qoq) 1QCY2015
% chg (yoy)
Investment Period
12 Months
Net sales
506
522
(3.1)
460
10.1
Other income
64
59
8.1
49
30.0
Stock Info
Operating profit
91
67
36.6
54
68.5
Sector
Pharmaceutical
Adj. Net profit
81
53
53.5
48
67.9
Market Cap (` cr)
10,156
Source: Company, Angel Research
Net debt (` cr)
(531)
Beta
0.4
Sanofi India (Sanofi)’s 1QCY2016 results have come in lower than our
expectation; the company posted a 10.1% yoy growth in revenue to `506cr V/s
52 Week High / Low
4,691/3,091
an expected `593cr. On the operating front, the gross margin came in at 52.1%,
Avg. Daily Volume
2090.0
almost in line with our expectation, and V/s 47.8% in the corresponding period
Face Value (`)
10
of last year. The OPM came in at 18.0% V/s an expected 20.0% and V/s 11.7%
BSE Sensex
25,102
in the corresponding period of last year. Consequently, the PAT came in at `81cr
Nifty
7,707
(V/s an expected `88cr), a yoy growth of 67.9%. We recommend an Accumulate
Reuters Code
SANO.BO
rating on the stock.
Bloomberg Code
[email protected]
Lower-than-expected results: The company posted a 10.1% yoy growth in
revenue to `506cr (V/s an expected `593cr). We expect revenue growth to
Shareholding Pattern (%)
sustain in the coming quarters with improvement in volumes along with likely
Promoters
60.4
price hikes in DPCO products. On the operating front, the gross margin came in
MF / Banks / Indian Fls
20.9
at
52.1%, almost in line with our expectation, and V/s
47.8% in the
FII / NRIs / OCBs
13.5
corresponding period of last year. The OPM came in at 18.0% V/s an expected
Indian Public / Others
5.2
20.0% and V/s 11.7% in the corresponding period of last year. Consequently,
the PAT came in at `81cr (V/s an expected `88cr), a yoy growth of 67.9%. Tax as
% of PBT was 35.3% V/s 26.5% in 1QCY2015. Other income for the quarter
Abs. (%)
3m 1yr
3yr
grew 30.0% yoy to `64cr.
Sensex
3.1
(8.7)
28.2
Sanofi India
5.4
31.6
75.0
Outlook and valuation: We expect net sales to post a 14.6% CAGR to `2,692cr
and EPS to register a 21.2% CAGR to `169.2 over CY2015-17E. At current
3-year price chart
levels, the stock is trading at 28.7x and 26.1x its CY2016E and CY2017E
earnings, respectively. Given the valuations, we recommend an Accumulate rating
on the stock.
Key financials
Y E Dec (` cr)
CY2014
CY2015
CY2016E
CY2017E
Net Sales
1,875
2,049
2,357
2,692
% chg
9.9
9.3
15.0
14.2
Net Profit
197.1
264.9
353.0
389.2
% chg
(17.8)
34.4
33.3
10.2
EPS (`)
85.6
115.2
153.5
169.2
Source: Company, Angel Research
EBITDA(%)
12.6
15.4
17.3
17.3
P/E (x)
51.5
38.3
28.7
26.1
RoE (%)
14.4
19.3
25.8
28.4
RoCE (%)
10.2
14.8
20.9
24.9
P/BV (x)
6.8
6.2
4.9
3.9
Sarabjit Kour Nangra
EV/Sales (x)
5.2
4.7
4.0
3.2
+91 22 3935 7800 Ext: 6806
EV/EBITDA (x)
41.0
30.4
22.9
18.7
[email protected]
Source: Company, Angel Research; Note: CMP as of May 4, 2016
Please refer to important disclosures at the end of this report
1
Sanofi India | 1QCY2016 Result Update
Exhibit 1: 1QCY2016 performance
Y/E Dec (` cr)
1QCY2016
4QCY2015
% chg (qoq) 1QCY2015
% chg (yoy)
CY15
CY14
% chg yoy
Net sales
506
522
(3.1)
460
10.1
2,049
1,875
9.3
Other income
64
59
8.1
49
30.0
223
167
33.5
Total income
570
581
(1.9)
509
12.0
2,272
2,042
11.3
PBIDT
91
67
36.6
54
68.5
315
236
33.5
OPM (%)
18.0
12.7
11.7
15.4
12.6
Interest
0.1
0.1
0.1
0
1
Depreciation & amortisation
30
30
1.7
26
15.8
113
97
16.5
PBT & exceptional items
125
96
30.0
77
61.9
425
306
38.8
Less : Exceptional items
0
(68)
(16)
(56)
(67)
Profit before tax
125
164
(23.9)
92
35.3
481
372
29.2
Provision for taxation
44
43
1.4
28
56.8
159
109
46.2
Net profit
81
120
(32.9)
65
25.0
322
264
21.9
Adj net profit
81
53
53.5
48
67.9
265
197
34.8
EPS (`)
35.0
22.8
20.9
115.4
85.7
Source: Company, Angel Research
Exhibit 2: 1QCY2016 - Actual Vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net sales
506
593
(14.6)
Other income
64
49
31.3
Operating profit
91
119
(23.2)
Tax
44
49
(11.0)
Net profit
81
88
(8.0)
Source: Company, Angel Research
Revenue growth lower than expectation
The company posted a 10.1% yoy growth in sales of `506cr (V/s an expected
`593cr). We expect revenue growth to sustain in the coming quarters with
improvement in volumes along with likely price hikes in DPCO products.
Exhibit 3: Sales trend
570
553
522
514
520
506
460
470
420
370
320
1QCY2015
2QCY2015
3QCY2015
4QCY2015
1QCY2016
Source: Company, Angel Research
May 5, 2016
2
Sanofi India | 1QCY2016 Result Update
OPM expands to 18%: On the operating front, the gross margin came in at
52.1%, almost in line with our expectation, and V/s 47.8% in the corresponding
period of last year. The expansion in the gross margin came on the back of price
hikes. The OPM came in at 18% V/s an expected 20.0% and V/s 11.7% in the
corresponding period of last year.
Exhibit 4: OPM trend
21.0
19.7
19.0
18.0
17.0
16.7
15.0
13.0
12.7
11.7
11.0
9.0
1QCY2015
2QCY2015
3QCY2015
4QCY2015
1QCY2016
Source: Company, Angel Research
Bottom-line lower than estimate: The PAT came in at `81cr (V/s an expected
`88cr), a yoy growth of 67.9%. The other income during the quarter came in at
`64cr V/s `49cr in 1QCY2015, while tax as a % of PBT was at 35.3% V/s 26.5% in
1QCY2015.
Exhibit 5: Adj. net profit trend
90
81
80
73
70
70
60
53
53
50
40
30
20
10
0
1QCY2015
2QCY2015
3QCY2015
4QCY2015
1QCY2016
Source: Company, Angel Research
May 5, 2016
3
Sanofi India | 1QCY2016 Result Update
Recommendation rationale
Focus on top-line growth: Sanofi recorded a revenue CAGR of 9.1% over
CY2006-12 to `1,494cr. The growth could have been better but was impacted by
a lower-than-expected growth in domestic formulations and loss of distribution
rights of Rabipur vaccine. Going forward, 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. The project is expected to
provide incremental revenue of `500cr over the next five years.
Sanofi also plans to launch 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 nutarceutical business, thus aiding it in
diversifying, and boosting overall growth of its domestic formulation business.
During 2HCY2014 the company’s sales were impacted by the July 2014 National
Pharmaceutical Pricing Authority (NPPA) order which has brought 80 formulations
pertaining to 50 drugs under price control. This severely impacted the company as
three of its major products came under price control. The company is estimated to
suffer a value loss of `120cr on an annualized basis. However, on the positive side
the government has revoked the order, which should aid a recovery in the
domestic formulation sales of the company, going forward. We expect the
company’s net sales to log a 15.0% CAGR over CY2015-17, with domestic
formulation sales expected to post a yoy growth of around 15.0% during the
period.
Valuation: We expect net sales to post a 14.6% CAGR to `2,720cr and EPS to
register a 21.2% CAGR to `169.2 over CY2015-17. At current levels, the stock is
trading at 28.7x and 26.1x its CY2016E and CY2017E earnings, respectively. Given
the valuations, we recommend an Accumulate rating on the stock.
Exhibit 6: Key assumptions
CY2016E
CY2017E
Net sales growth (%)
15.7
14.2
Domestic sales growth (%)
15.0
15.0
Export sales growth (%)
10.0
10.0
Growth in employee expenses (%)
15.7
14.2
Operating margins (%)
17.3
17.3
Net profit growth (%)
33.3
10.2
Capex (` cr)
30.0
30.0
Source: Company, Angel Research
May 5, 2016
4
Sanofi India | 1QCY2016 Result Update
Exhibit 7: One-year forward P/E
6,000
5,000
4,000
3,000
2,000
1,000
0
Price
10x
15x
20x
25x
Source: Company, Angel Research
Exhibit 8: Recommendation summary
Company
Reco.
CMP Tgt Price Upside
FY2017E
FY15-17E
FY2017E
(`)
(`)
(%) PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
600
-
-
20.9
2.9
14.8
38.2
31.3
31.2
Aurobindo Pharma Accumulate
812
856
5.4
19.0
3.0
13.2
15.6
23.5
30.2
Cadila Healthcare
Accumulate
322
352
9.2
18.3
3.6
16.5
24.6
25.2
29.0
Cipla
Accumulate
533
605
13.4
19.4
3.2
16.1
18.3
16.7
16.1
Dr Reddy's
Buy
2,933
3,933
34.1
16.4
2.4
10.6
17.2
19.1
20.4
Dishman Pharma
Neutral
165
-
-
16.5
1.8
8.2
15.9
9.4
11.0
GSK Pharma
Neutral
3,623
-
-
53.0
9.3
42.1
6.6
33.7
34.3
Indoco Remedies
Neutral
271
-
-
19.9
2.2
11.9
23.0
19.7
19.7
Ipca labs
Buy
487
750
54.2
17.4
1.8
9.7
17.9
11.8
14.9
Lupin
Neutral
1,578
-
-
23.1
3.9
14.6
13.1
29.6
24.7
Sanofi India*
Accumulate
4,410
4,738
7.4
28.7
4.7
22.9
34.2
21.0
25.6
Sun Pharma
Neutral
803
950
18.3
29.8
5.2
17.1
8.4
15.8
16.6
Source: Company, Angel Research, *- December ending
Company Background
Sanofi, a leading global pharmaceutical company, operates in India through four
entities - Sanofi India, Sanofi-Synthelabo (India) Ltd, Sanofi Pasteur India Pvt 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 at
~`500cr contributed
~26% of sales in
CY2014.
May 5, 2016
5
Sanofi India | 1QCY2016 Result Update
Profit & loss statement
Y/E Dec. (` cr)
CY2012
CY2013
CY2014
CY2015
CY2016E
CY2017E
Gross sales
1,534
1,746
1,915
2,097
2,412
2,748
Less: Excise duty
40
39
40
48
55
56
Net sales
1,494
1,707
1,875
2,049
2,357
2,692
Other operating income
91
102
103
144
144
144
Total operating income
1,585
1,809
1,978
2,193
2,500
2,835
% chg
20.5
14.1
9.3
10.9
14.0
13.4
Total expenditure
1,261
1,411
1,639
1,734
1,948
2,225
Net raw materials
735
820
974
1,012
1,117
1,276
Other mfg costs
74
82
93
106
122
140
Personnel
214
242
288
333
383
438
Other
238
267
283
283
325
371
EBITDA
233
296
236
315
409
467
% chg
32.2
27.0
7.3
8.3
9.3
10.3
(% of Net Sales)
15.6
17.3
12.6
15.4
17.3
17.3
Depreciation& amortisation
90
92
97
113
123
125
EBIT
143
203
140
202
286
342
% chg
(1.5)
42.4
5.7
6.7
7.7
8.7
(% of Net Sales)
9.6
11.9
10.2
11.2
12.2
13.2
Interest & other charges
1
0
-
-
-
-
Other income
30
58
64
135
100
100
(% of PBT)
11.4
15.9
18.6
19.6
20.6
21.6
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
262
363
307
481
530
585
% chg
(7.7)
38.7
3.8
4.8
5.8
6.8
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
262
363
307
481
530
585
Tax
85.0
123.3
109.0
159.4
174.9
193.2
(% of PBT)
32.4
33.9
35.6
33.1
33.0
33.0
PAT (reported)
177
240
198
322
355
392
Extra-ordinary items
(0)
(25)
(67)
56
-
-
PAT after MI (reported)
177
266
264
321
353
389
ADJ. PAT
177
240
197
265
353
389
% chg
(7.4)
35.4
(17.8)
34.4
33.3
10.2
(% of Net Sales)
11.8
15.6
14.1
15.7
15.0
14.5
Basic EPS (`)
77
104
86
115
153
169
Fully Diluted EPS (`)
77
104
86
115
153
169
% chg
(7.4)
35.4
(17.8)
34.6
33.3
10.2
May 5, 2016
6
Sanofi India | 1QCY2016 Result Update
Balance Sheet
Y/E Dec (` cr)
CY2012 CY2013 CY2014 CY2015 CY2016E CY2017E
SOURCES OF FUNDS
Equity share capital
23
23
23
23
23
23
Preference Capital
-
-
-
-
-
-
Reserves & surplus
1,181
1,324
1,463
1,604
2,061
2,553
Shareholders funds
1,204
1,347
1,486
1,627
2,084
2,576
Long term provisions
19
25
32
40
40
40
Other long term liabilities
-
-
-
-
-
-
Total loans
-
-
-
-
-
-
Total liabilities
1,223
1,372
1,518
1,668
2,126
2,620
APPLICATION OF FUNDS
Gross block
889
1,075
1,195
1,349
1,379
1,409
Less: Acc. depreciation
315
409
506
619
741
867
Net block
574
666
690
730
638
542
Goodwill
125
125
125
125
125
125
Capital Work-in-Progress
43
43
43
43
43
43
Long term loan and adv.
61
62
106
262
262
262
Investments
0.4
0.2
0.2
0.2
0.2
0.2
Current assets
827
947
1,263
1,245
1,865
2,551
Cash
429
264
469
572
788
1,428
Loans & advances
208
219
196
301
346
288
Other
191
464
598
373
731
835
Current liabilities
387
435
656
617
687
785
Net current assets
441
512
607
628
1,178
1,767
Deferred tax assets
(21)
(37)
(54)
(120)
(120)
(120)
Total assets
1,223
1,372
1,518
1,668
2,126
2,620
May 5, 2016
7
Sanofi India | 1QCY2016 Result Update
Cash flow statement
Y/E Dec. (` cr)
CY2012 CY2013 CY2014 CY2015 CY2016E CY2017E
Profit before tax
282
285
291
292
293
294
Depreciation
90
92
97
113
123
125
(Inc)/Dec in Working Capital
(147)
236
(64)
73
334
(51)
Less: Other income
91
102
66
67
68
69
Direct taxes paid
93
91
93
94
95
96
Cash Flow from Operations
41
420
164
317
587
203
(Inc.)/Dec.in Fixed Assets
(67)
(186)
(120)
(154)
(30)
(30)
(Inc.)/Dec. in Investments
-
0
0
-
-
1
Other income
91
102
66
67
68
69
Cash Flow from Investing
24
(84)
41
42
43
44
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
-
-
-
-
-
-
Dividend Paid (Incl. Tax)
(88)
(104)
(104)
(104)
(104)
(104)
Others
218
(397)
102
(153)
(301)
519
Cash Flow from Financing
130
(501)
(1)
(257)
(404)
415
Inc./(Dec.) in Cash
195
(164)
204
103
226
663
Opening Cash balances
234
429
264
469
572
788
Closing Cash balances
429
264
469
572
788
1,428
May 5, 2016
8
Sanofi India | 1QCY2016 Result Update
Key ratios
Y/E Dec.
CY2012
CY2013
CY2014
CY2015
CY2016E CY2017E
Valuation Ratio (x)
P/E (on FDEPS)
57.4
42.4
51.5
38.3
28.7
26.1
P/CEPS
38.1
28.4
28.1
23.4
21.3
19.7
P/BV
8.4
7.5
6.8
6.2
4.9
3.9
EV/Sales
6.5
5.8
5.2
4.7
4.0
3.2
EV/EBITDA
41.8
33.5
41.0
30.4
22.9
18.7
Per Share Data (`)
EPS (Basic)
76.9
104.1
85.6
115.2
153.5
169.2
EPS (fully diluted)
76.9
104.1
85.6
115.2
153.5
169.2
Cash EPS
115.9
155.4
156.7
188.7
206.9
223.7
DPS
33.0
33.0
33.0
33.0
33.0
33.0
Book Value
522.9
584.8
645.2
707.4
906.0
1,120.2
Returns (%)
RoCE (Pre-tax)
12.1
15.7
10.2
14.8
20.9
24.9
Angel ROIC (Pre-tax)
17.5
22.4
14.6
21.1
29.8
35.5
ROE
15.3
18.8
14.4
19.3
25.8
28.4
Turnover ratios (x)
Inventory / Sales (days)
61
31
28
26
23
20
Receivables (days)
23
9
8
7
7
6
Payables (days)
44
24
21
20
18
16
May 5, 2016
9
Sanofi India | 1QCY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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 and Metropolitan Stock Exchange of India 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 including its relatives/analyst do not hold any financial
interest/beneficial ownership of more than 1% in the company covered by Analyst. 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. Angel/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in
market making activity of the company covered by Analyst.
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
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Sanofi India
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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)
May 5, 2016
10