3QCY2016 Result Update | Pharmaceutical
November 10, 2016
Sanofi India
NEUTRAL
CMP
`4,277
Performance Highlights
Target Price
-
Investment Period
-
Y/E Dec. (` cr)
3QCY2016 2QCY2016
% chg (qoq) 3QCY2015
% chg (yoy)
Net sales
583
565
3.1
553
5.4
Stock Info
Other income
56
59
(4.9)
42
32.5
Sector
Pharmaceutical
Operating profit
104
103
0.7
109
(4.7)
Market Cap (` cr)
9,850
Adj. Net profit
81
85
(4.9)
73
11.9
Net debt (`
cr)
(239)
Source: Company, Angel Research
Beta
0.3
Sanofi India posted results and are below expectations on all fronts. The sales
52 Week High / Low
4,770/3,850
came in at `583cr vs. `600cr expected, posting a yoy growth of 5.4%. According
Avg. Daily Volume
2,410
to AIOCD, secondary sales, growth for Sanofi India was double digit. According
Face Value (`)
10
to AIOCD, regulatory actions will have negative one-time impact of ~2% on sales
BSE Sensex
27,591
of the company. We expect revenue growth to sustain in the coming quarters with
Nifty
8,544
improvement in volumes.On the operating front, the EBITDA margin came in at
Reuters Code
SANO.BO
17.8% vs. 19.0% expected and 19.7% in 3QCY2015. Consequently, the Adj. PAT
Bloomberg Code
[email protected]
came in at `81cr vs. `73cr in 3QCY2015, a yoy growth of 11.9%. This was
against the expectations of `94cr. We maintain our Neutral rating on the stock.
Shareholding Pattern (%)
Lower -than-expected results; mainly on sales: Sanofi India posted results and are
Promoters
60.4
below expectations on all fronts. The sales came in at `583cr vs. `600cr
MF / Banks / Indian Fls
19.3
expected, posting a yoy growth of 5.4%. According to AIOCD, secondary sales,
FII / NRIs / OCBs
15.1
growth for Sanofi India was double digit. According to AIOCD, regulatory actions
Indian Public / Others
5.2
will have negative one-time impact of ~2% on sales of the company.On the
operating front, the EBITDA margin came in at 17.8% vs. 19.0% expected and
19.7% in 3QCY2015. Consequently, the Adj. PAT came in at `81cr vs. `73cr in
Abs. (%)
3m 1yr
3yr
3QCY2015, a yoy growth of 11.9%. This was against the expectations of `94cr.
Sensex
(2.1)
5.0
33.5
Outlook and valuation: We expect net sales to post a 12.6% CAGR to `2,597cr
Sanofi India
(4.6)
(0.8)
66.7
and EPS to register a 22.2% CAGR to `172.1 over CY2015-17. At current levels,
the stock is trading at 28.5x and 24.8x its CY2016E and CY2017E earnings,
3-year price chart
respectively. Given the rich valuations, we recommend a Neutral rating on the
4,900
stock.
4,500
4,100
Key financials
3,700
Y E Dec (` cr)
CY2014
CY2015
CY2016E
CY2017E
3,300
Net Sales
1,875
2,049
2,277
2,597
2,900
2,500
% chg
9.9
9.3
11.1
14.1
2,100
Net Profit
197.1
264.9
343.7
395.5
1,700
% chg
(17.8)
34.4
29.8
15.1
EPS (`)
85.6
115.2
149.4
172.0
EBITDA(%)
12.6
15.4
17.3
18.3
Source: Company, Angel Research
P/E (x)
49.7
37.0
28.5
24.8
RoE (%)
14.4
19.3
25.1
28.8
RoCE (%)
10.2
14.8
19.9
25.6
P/BV (x)
6.6
6.0
4.7
3.8
Sarabjit Kour Nangra
EV/Sales (x)
5.0
4.5
4.0
3.2
+91 22 3935 7800 Ext: 6806
EV/EBITDA (x)
39.5
29.2
22.8
17.6
[email protected]
Source: Company, Angel Research; Note: CMP as of November 8, 2016
Please refer to important disclosures at the end of this report
1
Sanofi India | 3QCY2016 Result Update
Exhibit 1: 3QCY2016 performance
Y/E Dec (` cr)
3QCY2016
2QCY2016
% chg (qoq) 3QCY2015
% chg (yoy) 9MCY16 9MCY15
% chg yoy
Net sales
583
565
3.1
553
5.4
1,654
1,527
8.3
Other income
56
59
(4.9)
42
32.5
178
152
17.0
Total income
639
624
2.3
595
7.4
1,832
1,679
9.1
PBIDT
104
103
0.7
109
(4.7)
299
249
19.9
OPM (%)
17.8
18.2
19.7
18.0
16.3
Interest
0.3
0.7
0.1
1
0
Depreciation & amortisation
30
30
0.0
29
3.4
90
83
8.6
PBT & exceptional items
130
132
(1.4)
122
6.1
385
318
21.1
Less : Exceptional items
0
0
0
0
16
Profit before tax
130
132
(1.4)
122
6.1
385
302
27.5
Provision for taxation
49
46
5.2
50
(2.2)
139
116
19.6
Net profit
81
85
(4.9)
73
11.9
247
185
33.2
Adj net profit
81
85
(4.9)
73
11.9
247
169
45.9
EPS (`)
35.3
37.1
31.5
107.2
73.5
Source: Company, Angel Research
Exhibit 2: 3QCY2016 - Actual Vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net sales
583
600
(2.9)
Other income
56
60
(6.3)
Operating profit
104
114
(9.1)
Tax
49
51
(4.3)
Net profit
81
94
(14.0)
Source: Company, Angel Research
Revenue growth lower than expectation
The company posted sales of `583cr (vs. an expected `600cr), a yoy growth of
5.4%. According to AIOCD, secondary sales, growth for Sanofi India was double
digit. According to AIOCD, regulatory actions will have negative one-time impact
of ~2% on sales of the company. We expect revenue growth to sustain in the
coming quarters with improvement in volumes.
Exhibit 3: Sales trend
620
583
565
570
553
522
506
520
470
420
370
320
3QCY2015
4QCY2015
1QCY2016
2QCY2016
3QCY2016
Source: Company, Angel Research
November 10, 2016
2
Sanofi India | 3QCY2016 Result Update
OPM dips to 17.8%: On the operating front, the gross margin came in at 49.8%
vs. an expected 52.4% and vs. 52.0% in the corresponding period of last year. The
OPM came in at 17.8% vs. an expected 19.0% and vs. 19.7% in the corresponding
period of last year. Other expenses moved down by 5.4%, while employee
expenses moved up by 16.1% yoy during the quarter; thus leading dip in the
operating margins.
Exhibit 4: OPM trend
21.0
19.7
18.0
17.8
18.0
18.2
15.0
12.0
12.7
9.0
3QCY2015
4QCY2015
1QCY2016
2QCY2016
3QCY2016
Source: Company, Angel Research
Bottom-line lower than estimate: The PAT came in at `81cr (vs.an expected `94cr),
a yoy growth of 11.9%. The other income during the quarter came in at `56.5cr
vs. `42.4cr in 3QCY2015, while tax as a percentage of PBT was at 37.5% vs.
40.7% in 3QCY2015.
Exhibit 5: Adj. net profit trend
90
85
81
81
80
73
70
60
53
50
40
30
20
10
0
3QCY2015
4QCY2015
1QCY2016
2QCY2016
3QCY2016
Source: Company, Angel Research
November 10, 2016
3
Sanofi India | 3QCY2016 Result Update
Recommendation rationale
Focus on top-line growth: Sanofi recorded revenue CAGR of 9.1% to `1,494cr
over CY2006-12. The growth 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 have come 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 12.6% CAGR over CY2015-17, with domestic
formulation sales expected to post a yoy growth of around 14.3% during the
period.
Valuation: We expect net sales to post a 12.6% CAGR to `2,597cr and EPS to
register a 22.2% CAGR to `172.1 over CY2015-17. At current levels, the stock is
trading at 28.1x and 24.8x its CY2016E and CY2017E earnings, respectively. Given
the rich valuations, we recommend a Neutral rating on the stock.
Exhibit 6: Key assumptions
CY2016E
CY2017E
Net sales growth (%)
11.1
14.1
Domestic sales growth (%)
10.0
15.0
Export sales growth (%)
6.0
10.0
Growth in employee expenses (%)
11.1
14.1
Operating margins (%)
17.4
20.8
Net profit growth (%)
29.8
15.1
Capex (` cr)
30.0
30.0
Source: Company, Angel Research
November 10, 2016
4
Sanofi India | 3QCY2016 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
FY2018E
FY16-18E
FY2018E
(`)
(`)
(%) PE (x) EV/Sales (x) EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
655
-
-
21.6
2.9
13.5
(10.8)
27.5
25.3
Aurobindo Pharma Buy
757
877
15.9
16.0
2.6
11.1
18.1
22.5
26.1
Cadila Healthcare Buy
375
-
-
19.5
3.0
13.7
13.4
22.7
25.7
Cipla
Neutral
536
-
-
19.7
2.5
13.6
20.4
13.5
15.2
Dr Reddy's
Neutral
3,115
-
-
21.8
2.8
12.5
1.7
16.2
15.9
Dishman Pharma Neutral
237
-
-
21.0
2.3
10.3
3.1
10.3
10.9
GSK Pharma*
Neutral
2,719
-
-
44.7
6.8
32.8
17.3
35.3
32.1
Indoco Remedies Reduce
277
240
(13.4)
17.3
2.0
11.1
33.2
19.1
20.1
Ipca labs
Accumulate
572
613
7.2
29.0
2.0
13.1
36.5
8.8
9.4
Lupin
Buy
1,509
1,809
19.9
21.8
3.6
13.4
17.2
24.4
20.9
Sanofi India*
Neutral
4,277
-
-
24.9
3.3
17.8
22.2
24.9
28.8
Sun Pharma
Buy
635
944
48.6
19.4
3.8
12.2
22.0
33.1
18.9
Source: Company, Angel Research
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
CY2014.
November 10, 2016
5
Sanofi India | 3QCY2016 Result Update
Profit & loss statement
Y/E Dec. (` cr)
CY12
CY3
CY14
CY15
CY16E
CY17E
Gross sales
1,534
1,746
1,915
2,097
2,329
2,653
Less: Excise duty
40
39
40
48
53
56
Net sales
1,494
1,707
1,875
2,049
2,277
2,597
Other operating income
91
102
103
144
144
144
Total operating income
1,585
1,809
1,978
2,193
2,420
2,741
% chg
20.5
14.1
9.3
10.9
10.4
13.2
Total expenditure
1,261
1,411
1,639
1,734
1,882
2,120
Net raw materials
735
820
974
1,012
1,079
1,205
Other mfg costs
74
82
93
106
118
135
Personnel
214
242
288
333
370
422
Other
238
267
283
283
314
358
EBITDA
233
296
236
315
395
477
% 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
18.3
Dep. & amortisation
90
92
97
113
123
125
EBIT
143
203
140
202
272
351
% 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 Asso.
-
-
-
-
-
-
Recurring PBT
262
363
307
481
516
595
% chg
(7.7)
38.7
3.8
4.8
5.8
6.8
Extraordinary Exp./(Inc.)
PBT (reported)
262
363
307
481
516
595
Tax
85.0
123.3
109.0
159.4
170.3
196.3
(% of PBT)
32.4
33.9
35.6
33.1
33.0
33.0
PAT (reported)
177
240
198
322
346
399
Extra-ordinary items
(0)
(25)
(67)
56
-
-
PAT after MI (reported)
177
266
264
321
344
396
ADJ. PAT
177
240
197
265
344
396
% chg
(7.4)
35.4
(17.8)
34.4
29.8
15.1
(% of Net Sales)
11.8
15.6
14.1
15.7
15.1
15.2
Basic EPS (`)
77
104
86
115
149
172
Fully Diluted EPS (`)
77
104
86
115
149
172
% chg
(7.4)
35.4
(17.8)
34.6
29.8
15.1
November 10, 2016
6
Sanofi India | 3QCY2016 Result Update
Balance sheet
Y/E Dec (` cr)
CY12
CY3 CY14 CY15 CY16E CY17E
SOURCES OF FUNDS
Equity share capital
23
23
23
23
23
23
Preference Capital
-
-
-
-
-
-
Reserves & surplus
1,181
1,324
1,463
1,604
2,051
2,551
Shareholders funds
1,204
1,347
1,486
1,627
2,074
2,574
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
2,117
2,617
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
1,832
2,521
Cash
429
264
469
572
792
1,427
Loans & advances
208
219
196
301
334
288
Other
191
464
598
373
706
806
Current liabilities
387
435
656
617
664
757
Net current assets
441
512
607
628
1,169
1,764
Deferred tax assets
(21)
(37)
(54)
(120)
(120)
(120)
Total assets
1,223
1,372
1,518
1,668
2,117
2,617
November 10, 2016
7
Sanofi India | 3QCY2016 Result Update
Cash flow statement
Y/E Dec. (` cr)
CY12 CY13 CY14 CY15 CY16E
CY17E
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
321
(40)
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
574
215
(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
213
675
Opening Cash balances
234
429
264
469
572
792
Closing Cash balances
429
264
469
572
792
1,427
November 10, 2016
8
Sanofi India | 3QCY2016 Result Update
Key ratios
Y/E Dec.
CY12
CY13
CY14
CY15
CY16E
CY17E
Valuation Ratio (x)
P/E (on FDEPS)
55.4
40.9
49.7
37.0
28.5
24.8
P/CEPS
36.7
27.4
27.2
22.6
21.0
18.8
P/BV
8.1
7.3
6.6
6.0
4.7
3.8
EV/Sales
6.3
5.6
5.0
4.5
4.0
3.2
EV/EBITDA
40.3
32.3
39.5
29.2
22.8
17.6
Per Share Data (`)
EPS (Basic)
76.9
104.1
85.6
115.2
149.4
172.0
EPS (fully diluted)
76.9
104.1
85.6
115.2
149.4
172.0
Cash EPS
115.9
155.4
156.7
188.7
202.8
226.5
DPS
33.0
33.0
33.0
33.0
33.0
33.0
Book Value
522.9
584.8
645.2
707.4
901.9
1,118.9
Returns (%)
RoCE (Pre-tax)
12.1
15.7
10.2
14.8
19.9
25.6
Angel ROIC (Pre-tax)
17.5
22.4
14.6
21.1
28.3
36.5
ROE
15.3
18.8
14.4
19.3
25.1
28.8
Turnover ratios (x)
Inventory / Sales (days)
61
31
28
26
23
21
Receivables (days)
23
9
8
7
7
6
Payables (days)
44
24
21
20
18
16
November 10, 2016
9
Sanofi India | 3QCY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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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)
November 10, 2016
10