4QCY2016 Result Update | Pharmaceutical
March 10, 2017
Sanofi India
NEUTRAL
CMP
`4,301
Performance Highlights
Target Price
-
Investment Period
-
Y/E Dec. (` cr)
4QCY2016 3QCY2016
% chg (qoq) 4QCY2015
% chg (yoy)
Net sales
552
583
(5.3)
522
5.6
Stock Info
Other income
55
56
(1.4)
59
(5.9)
Sector
Pharmaceutical
Operating profit
67
104
(35.4)
67
0.8
Market Cap (` cr)
9,906
Adj. Net profit
51
81
(37.7)
53
(3.8)
Net debt (` cr)
(518.9)
Source: Company, Angel Research
Beta
0.3
52 Week High / Low
4,770/3,850
For 4QCY2016, Sanofi India posted results which were below expectations on the
Avg. Daily Volume
2,061
sales front. The sales came in at `552cr v/s. `570cr expected, posting a yoy
Face Value (`)
10
growth of 5.6%. On the operating front, the EBITDA margin came in at 12.2%
BSE Sensex
28,929
(12.3% expected) v/s. 12.7% in 4QCY2015. This came in-spite of GPM (Gross
Nifty
8,927
Profit Margin), which came in at 54.7% V/s 51.5% in 4QCY2016, as the other
Reuters Code
SANO.BO
expenses rose by 28.5% yoy. Consequently, the Adj. PAT came in at `51cr v/s.
Bloomberg Code
[email protected]
`53cr in 4QCY2015, a yoy de-growth of 3.8%. This was against the expectations
of `50cr. We maintain our Neutral rating on the stock.
Shareholding Pattern (%)
Results lower than expectations, mainly on sales: Sanofi India’s results were below
Promoters
60.4
expectations on the sales front for the quarter. The sales came in at `552cr v/s.
MF / Banks / Indian Fls
18.7
`570cr expected, posting a yoy growth of 5.6%. On the operating front, the
FII / NRIs / OCBs
15.5
EBITDA margin came in at 12.2% (12.3% expected) v/s. 12.7% in 4QCY2015.
Indian Public / Others
5.4
This came in-spite of GPM (Gross Profit Margin), which came in at 54.7% V/s
51.5% in 4QCY2016, as the other expenses rose by 28.5% yoy. Consequently,
Abs. (%)
3m 1yr
3yr
the Adj. PAT came in at `51cr v/s. `53cr in 4QCY2015, a yoy de-growth of 3.8%.
Sensex
8.3
17.2
31.9
This was against the expectations of `50cr.
Sanofi India
(0.7)
(2.8)
57.8
Outlook and valuation: We expect net sales to post a 12.6% CAGR to `2,597cr
and EPS to register 16.8% CAGR to `157.2 over CY2015-17. At current levels,
3-year price chart
the stock is trading at
33.4x and 27.4x its CY2016 and CY2017E earnings
4,900
respectively. Given the rich valuations, we recommend a Neutral rating.
4,500
4,100
Key financials
3,700
Y E Dec (` cr)
CY2014
CY2015
CY2016E
CY2017E
3,300
2,900
Net Sales
1,875
2,049
2,206
2,597
2,500
% chg
9.9
9.3
7.7
17.7
2,100
Net Profit
197.1
264.9
296.5
361.5
1,700
% chg
(17.8)
34.4
11.9
21.9
EPS (`)
85.6
115.2
128.9
157.2
Source: Company, Angel Research
EBITDA (%)
12.6
15.4
16.6
17.4
P/E (x)
50.3
37.3
33.4
27.4
RoE (%)
14.4
19.3
21.6
26.4
RoCE (%)
10.2
14.8
17.1
22.5
P/BV (x)
6.7
6.1
5.7
4.4
Sarabjit Kour Nangra
EV/Sales (x)
5.0
4.5
4.2
3.4
+91 22 3935 7800 Ext: 6806
EV/EBITDA (x)
39.9
29.6
25.5
19.4
[email protected]
Source: Company, Angel Research; Note: CMP as of March 9, 2017
Please refer to important disclosures at the end of this report
1
Sanofi India | 4QCY2016 Result Update
Exhibit 1: 4QCY2016 performance
Y/E Dec (` cr)
4QCY2016
3QCY2016
% chg (qoq) 4QCY2015
% chg (yoy) CY2016 CY2015
% chg yoy
Net sales
552
583
(5.3)
522
5.6
2,206
2,049
7.7
Other income
55
56
(1.4)
59
(5.9)
233
223
4.6
Total income
607
639
(5.0)
581
4.5
2,439
2,272
7.4
PBIDT
67
104
(35.4)
67
0.8
366
315
16.0
OPM (%)
12.2
17.8
12.7
16.6
15.4
Interest
0.4
0.3
0.1
2
0
Depreciation & amortization
41
30
37.3
30
39.2
131
113
16.2
PBT & exceptional items
81
130
(37.6)
96
(15.6)
466
425
9.7
Less : Exceptional items
0
0
0
0
(56)
Profit before tax
81
130
(37.6)
96
(15.6)
466
481
(3.1)
Provision for taxation
30
49
(37.4)
43
(29.8)
169
159
6.1
Net profit
51
81
(37.7)
53
(3.8)
297
322
(7.6)
Adj net profit
51
81
(37.7)
53
(3.8)
297
265
11.9
EPS (`)
22.0
35.3
22.8
128.9
115.2
Source: Company, Angel Research
Exhibit 2: 4QCY2016 - Actual Vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net sales
552
570
(3.2)
Other income
55
60
(7.7)
Operating profit
67
70
(4.0)
Tax
30
49
(37.4)
Net profit
51
50
1.2
Source: Company, Angel Research
Revenue growth lower than expectation
The company posted sales of `552cr (v/s. an expected `570cr), registering a
yoy growth of
5.6%. Growth is likely to have been impacted by the
demonetization measures undertaken during the quarter. According to
AIOCD, average industry growth stood at ~10% yoy in 4QFY2016 v/s ~14%
in the last year.
Exhibit 3: Sales trend
583
565
570
552
522
520
506
470
420
370
320
4QCY2015
1QCY2016
2QCY2016
3QCY2016
4QCY2016
Source: Company, Angel Research
March 10, 2017
2
Sanofi India | 4QCY2016 Result Update
OPM dips to 12.2%: On the operating front, the EBITDA margin came in at 12.2%
(12.3% expected) v/s. 12.7% in 4QCY2015. This came in-spite of GPM (Gross
Profit Margin), which came in at 54.7% V/s 51.5% in 4QCY2016, as the other
expenses rose by 28.5% yoy. Employee expenses rose only by 1.8% yoy.
Exhibit 4: OPM trend
21.0
18.0
18.2
18.0
17.8
15.0
12.7
12.0
12.2
9.0
6.0
3.0
0.0
4QCY2015
1QCY2016
2QCY2016
3QCY2016
4QCY2016
Source: Company, Angel Research
Bottom-line just in-line with estimates: Consequently, the Adj. PAT came in at
`51cr v/s. `53cr in 4QCY2015, a yoy de-growth of 3.8%. This was against the
expectations of `50cr. Tax as a percentage of PBT was at 37.6% v/s. 45.2% in
4QCY2015, however the deprecation posted yoy growth was 39.2%.
Exhibit 5: Adj. net profit trend
90
85
81
81
80
70
60
53
51
50
40
30
20
10
0
4QCY2015
1QCY2016
2QCY2016
3QCY2016
4QCY2016
Source: Company, Angel Research
March 10, 2017
3
Sanofi India | 4QCY2016 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 nutarceutical
business, thus aiding it in diversifying and boosting overall growth of its domestic
formulation business. We expect the company’s net sales to log a 12.6% CAGR
over CY2015-17, mainly driven by domestic formulation.
Valuation: We expect net sales to post a 12.6% CAGR to `2,597cr and EPS to
register a 16.8% CAGR to `157.2 over CY2015-17. At current levels, the stock is
trading at 33.4x and 27.4x 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 (%)
7.7
17.7
Growth in employee expenses (%)
7.7
17.7
Operating margins (%)
16.6
17.4
Net profit growth (%)
11.9
21.9
Capex (` cr)
78.0
30.0
Source: Company, Angel Research
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
March 10, 2017
4
Sanofi India | 4QCY2016 Result Update
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
Accumulate
603
689
14.3
17.9
2.5
11.9
(10.8)
27.5
25.3
Aurobindo Pharma Buy
658
877
14.1
13.9
2.3
9.7
18.1
22.5
26.1
Cadila Healthcare Neutral
439
-
-
22.9
3.6
16.6
13.5
23.6
27.1
Cipla
Sell
590
465
(21.1)
24.1
2.7
16.2
14.2
12.2
13.9
Dr Reddy's
Neutral
2,709
-
-
20.7
2.6
10.7
(2.7)
15.3
15.2
Dishman Pharma Sell
235
143
(39.3)
20.8
2.3
10.2
16.3
13.0
13.5
GSK Pharma
Neutral
2,693
-
-
44.7
6.8
32.9
16.9
37.5
34.5
Indoco Remedies Reduce
260
240
(7.7)
16.3
1.9
10.7
33.2
19.1
20.1
Ipca labs
Accumulate
549
613
11.6
28.6
2.0
12.8
34.8
8.6
9.5
Lupin
Buy
1,450
1,809
24.8
20.9
3.4
12.9
17.2
24.4
20.9
Sanofi India*
Neutral
4,301
-
-
27.4
3.4
19.4
16.8
22.5
26.4
Sun Pharma
Buy
685
847
23.6
19.4
4.1
12.4
26.5
18.9
20.1
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.
March 10, 2017
5
Sanofi India | 4QCY2016 Result Update
Profit & loss statement
Y/E Dec. (` cr)
CY12
CY13
CY14
CY15
CY16E
CY17E
Gross sales
1,534
1,746
1,915
2,097
2,259
2,653
Less: Excise duty
40
39
40
48
53
56
Net sales
1,494
1,707
1,875
2,049
2,206
2,597
Other operating income
91
102
103
144
162
162
Total operating income
1,585
1,809
1,978
2,193
2,369
2,759
% chg
20.5
14.1
9.3
10.9
8.0
16.5
Total expenditure
1,261
1,411
1,639
1,734
1,841
2,144
Net raw materials
735
820
974
1,012
1,065
1,231
Other mfg costs
74
82
93
106
115
135
Personnel
214
242
288
333
359
423
Other
238
267
283
283
302
355
EBITDA
233
296
236
315
366
453
% chg
32.2
27.0
7.3
8.3
9.3
10.3
(% of Net Sales)
15.6
17.3
12.6
15.4
16.6
17.4
Dep. & amortisation
90
92
97
113
131
144
EBIT
143
203
140
202
234
309
% 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
71
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
468
571
% chg
(7.7)
38.7
3.8
4.8
5.8
6.8
Extraordinary Exp./(Inc.)
PBT (reported)
262
363
307
481
468
571
Tax
85.0
123.3
109.0
159.4
169.1
206.8
(% of PBT)
32.4
33.9
35.6
33.1
36.2
36.2
PAT (reported)
177
240
198
322
299
365
Extra-ordinary items
(0)
(25)
(67)
56
-
-
PAT after MI (reported)
177
266
264
321
297
362
ADJ. PAT
177
240
197
265
297
362
% chg
(7.4)
35.4
(17.8)
34.4
11.9
21.9
(% of Net Sales)
11.8
15.6
14.1
15.7
13.4
13.9
Basic EPS (`)
77
104
86
115
129
157
Fully Diluted EPS (`)
77
104
86
115
129
157
% chg
(7.4)
35.4
(17.8)
34.6
11.9
21.9
March 10, 2017
6
Sanofi India | 4QCY2016 Result Update
Balance sheet
Y/E Dec (` cr)
CY12 CY13 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
1,713
2,234
Shareholders funds
1,204
1,347
1,486
1,627
1,736
2,257
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
1,778
2,300
APPLICATION OF FUNDS
Gross block
889
1,075
1,195
1,349
1,427
1,457
Less: Acc. depreciation
315
409
506
619
750
894
Net block
574
666
690
730
677
562
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
129
129
Investments
0.4
0.2
0.2
0.2
0.2
0.2
Current assets
827
947
1,263
1,245
1,567
2,323
Cash
429
264
469
572
559
1,090
Loans & advances
208
219
196
337
363
427
Other
191
464
598
336
646
806
Current liabilities
387
435
656
617
668
786
Net current assets
441
512
607
628
900
1,537
Deferred tax assets
(21)
(37)
(54)
(120)
(97)
(97)
Total assets
1,223
1,372
1,518
1,668
1,778
2,300
March 10, 2017
7
Sanofi India | 4QCY2016 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
March 10, 2017
8
Sanofi India | 4QCY2016 Result Update
Key ratios
Y/E Dec.
CY12
CY13
CY14
CY15
CY16E CY17E
Valuation Ratio (x)
P/E (on FDEPS)
55.9
41.3
50.3
37.3
33.4
27.4
P/CEPS
37.1
27.7
27.5
22.8
23.1
19.6
P/BV
8.2
7.4
6.7
6.1
5.7
4.4
EV/Sales
6.3
5.6
5.0
4.5
4.2
3.4
EV/EBITDA
40.7
32.6
39.9
29.6
25.5
19.4
Per Share Data (`)
EPS (Basic)
76.9
104.1
85.6
115.2
128.9
157.2
EPS (fully diluted)
76.9
104.1
85.6
115.2
128.9
157.2
Cash EPS
115.9
155.4
156.7
188.7
186.0
219.9
DPS
33.0
33.0
33.0
33.0
33.0
33.0
Book Value
522.9
584.8
645.2
707.4
754.6
981.5
Returns (%)
RoCE (Pre-tax)
12.1
15.7
10.2
14.8
17.1
22.5
Angel ROIC (Pre-tax)
17.5
22.4
14.6
21.1
24.4
32.1
ROE
15.3
18.8
14.4
19.3
21.6
26.4
Turnover ratios (x)
Inventory / Sales (days)
61
31
28
26
24
21
Receivables (days)
23
9
8
7
7
6
Payables (days)
44
24
21
20
19
16
March 10, 2017
9
Sanofi India | 4QCY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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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)
March 10, 2017
10