2QCY2017 Result Update | Pharmaceutical
August 28, 2017
Sanofi India
NEUTRAL
CMP
`4,007
Performance Highlights
Target Price
-
Investment Period
12 months
Y/E Dec. (` cr)
2QCY2017
1QCY2017
% chg (qoq)
2QCY2016
% chg (yoy)
Net sales
556
513
8.4
578
(3.8)
Stock Info
Other income
73
56
30.5
54
36.8
Sector
Pharmaceutical
Operating profit
71
61
15.2
108
(34.3)
Market Cap (` cr)
9,229
Adj. Net profit
Net debt (` cr)
(519)
74
60
22.8
86
(14.4)
Source: Company, Angel Research
Beta
0.5
52 Week High / Low
4,930/3,944
For 2QCY2017, Sanofi India posted results which were below expectations on all
Avg. Daily Volume
2,081
fronts. The sales came in at `556cr v/s. `520cr expected, registering a yoy de-
Face Value (`)
10
growth of 3.8%. On the operating front, the EBITDA margin came in at 12.7%
BSE Sensex
31,596
(17.6% expected) v/s. 18.6% in 2QCY2016. Despite better GPM (Gross Profit
Nifty
9,857
Margin), which came in at 55.5% v/s. 51.5% in 2QCY2016, the EBIDTA margin
Reuters Code
SANO.BO
was lower, as the other expenses rose by 35.7% yoy, while employee expenses
Bloomberg Code
SANL@IN
rose by 12.4% yoy. Consequently, the Adj. PAT came in at `74cr v/s. `86cr in
2QCY2016, a yoy de-growth of 14.4%. This was against the expectations of
`82cr. We maintain our Neutral rating.
Shareholding Pattern (%)
Promoters
60.4
Results lower than expectations on all fronts: The sales came in at `556cr v/s.
MF / Banks / Indian Fls
18.0
`520cr expected, registering a yoy de-growth of 3.8%. On the operating front, the
FII / NRIs / OCBs
16.0
EBITDA margin came in at 12.7% (17.6% expected) v/s. 18.6% in 2QCY2016.
Indian Public / Others
5.6
Despite better GPM (Gross Profit Margin), which came in at 55.5% v/s. 51.5% in
2QCY2016, the EBIDTA margin was lower, as the other expenses rose by 35.7%
yoy, while employee expenses rose by 12.4% yoy. Consequently, the Adj. PAT
Abs. (%)
3m 1yr
3yr
came in at `74cr v/s. `86cr in 2QCY2016, a yoy de-growth of 14.4%.
Sensex
6.5
12.6
19.5
Sanofi India
(8.7)
(7.1)
30.7
Outlook and valuation: We expect net sales to post 13.9% CAGR to `2,862cr and
EPS to register 9.2% CAGR to `153.8 over CY2016-18E. At current levels, stock is
3-year price chart
trading at 26.1x its CY2018E earnings. We recommend a Neutral rating.
Key financials
Y E Dec (` cr)
CY2015
CY2016
CY2017E
CY2018E
Net Sales
2,049
2,206
2,508
2,862
% chg
9.3
7.7
13.7
14.1
Net Profit
264.9
296.5
289.8
353.8
% chg
34.4
11.9
(2.2)
22.1
EPS (`)
115.2
128.9
126.0
153.8
EBITDA (%)
15.4
16.6
14.8
16.8
Source: Company, Angel Research
P/E (x)
34.8
31.1
31.8
26.1
RoE (%)
19.3
21.6
21.1
25.8
RoCE (%)
14.8
17.1
16.5
23.9
P/BV (x)
5.7
5.3
4.2
3.4
Sarabjit Kour Nangra
EV/Sales (x)
+91 22 3935 7800 Ext: 6806
4.2
3.9
3.3
2.7
EV/EBITDA (x)
27.4
23.7
22.1
16.0
Source: Company, Angel Research; Note: CMP as of August 24, 2017
Please refer to important disclosures at the end of this report
1
Sanofi India | 2QCY2017 Result Update
Exhibit 1: 2QCY2017 performance
Y/E Dec (` cr)
2QCY2017
1QCY2017
% chg (qoq)
2QCY2016
% chg (yoy)
1HCY17
1HCY16
% chg yoy
Net sales
556
513
8.4
578
(3.8)
1,069
1,096
(2.5)
Other income
73
56
30.5
54
36.8
129
117
10.4
Total income
629
569
10.6
631
(0.3)
1,198
1,213
(1.3)
PBIDT
71
61
15.2
108
(34.3)
132
199
(33.9)
OPM (%)
12.7
12.0
18.6
12.3
18.2
Interest
0.0
0.4
0.7
0
0
Depreciation & amortization
26
25
0.8
27
(5.2)
51
54
(5.6)
PBT & exceptional items
118
92
29.0
133
(11.3)
210
262
(19.9)
Less : Exceptional items
0
0
0
0
0
Profit before tax
118
92
29.0
133
(11.3)
210
262
(19.9)
Provision for taxation
45
32
40.7
47
(5.7)
76
93
(18.0)
Net profit
74
60
22.8
86
(14.4)
134
169
(21.0)
Adj net profit
74
60
22.8
86
(14.4)
134
169
(21.0)
EPS (`)
32.0
26.1
37.4
58.1
73.6
Source: Company, Angel Research
Exhibit 2: 2QCY2017 - Actual Vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net sales
556
520
6.9
Other income
73
56
30.5
Operating profit
71
69
2.9
Tax
45
44
0.9
Net profit
74
82
(10.3)
Source: Company, Angel Research
Revenue growth better than expectation
The sales came in at `556cr v/s. `520cr expected, posting a yoy de-growth of
3.8%, mainly on the back of the GST, though much better than our expectations.
According to AIOCD, secondary sales growth for the company stood at ~14% yoy,
higher than average industry growth of 7.6%.
Exhibit 3: Sales trend
Source: Company, Angel Research
August 18, 2017
2
Sanofi India | 2QCY2017 Result Update
OPM dips to 12.7%: On the operating front, the EBITDA margin came in at 12.7%
(17.6% expected) v/s. 18.6% in 2QCY2016. Despite better GPM (Gross Profit
Margin), which came in at 55.5% v/s. 51.5% in 2QCY2016, the EBIDTA margin
was lower, as the other expenses rose by 35.7% yoy, while employee expenses
rose by 12.4% yoy.
Exhibit 4: OPM trend
Source: Company, Angel Research
Bottom-line much lower than estimates: Consequently, the Adj. PAT came in at
`74cr v/s. `86cr in 2QCY2016, a yoy de-growth of 14.4%. This was against the
expectations of `82cr. Other income, which came in at `73.2cr, was up 36.8%
yoy.
Exhibit 5: Adj. Net Profit trend
Source: Company, Angel Research
August 18, 2017
3
Sanofi India | 2QCY2017 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 13.9% CAGR to `2,862cr and EPS to
register 9.2% CAGR to `153.8 over CY2016-18. At current levels, the stock is
trading at 29.9x and 27.2x its CY2017 and CY2018E earnings respectively. Given
the rich valuations, we recommend a reduce rating.
Exhibit 6: Key assumptions
CY2017E
CY2018E
Net sales growth (%)
13.7
14.1
Growth in employee expenses (%)
13.7
14.1
Operating margins (%)
14.8
16.8
Net profit growth (%)
(2.2)
9.9
Capex (` cr)
80.0
80.0
Source: Company, Angel Research
Exhibit 7: One-year forward P/E
Source: Company, Angel Research
August 18, 2017
4
Sanofi India | 2QCY2017 Result Update
Exhibit 8: Recommendation summary
Company
Reco.
CMP
Tgt Price
Upside
FY2019E
FY17-19E
FY2019E
(`)
(`)
(%) PE (x) EV/Sales (x) EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Buy
510
600
17.4
18.7
2.1
10.9
12.8
24.3
20.6
Aurobindo Pharma
Accumulate
733
823
12.3
14.2
2.2
10.0
14.2
25.3
22.7
Cadila Healthcare
Reduce
495
426
(13.9)
23.3
3.8
18.4
21.0
17.3
22.9
Cipla
Sell
573
458
(20.1)
23.8
2.5
15.3
38.7
10.9
13.1
Dr Reddy's
Accumulate
2,088
2,219
6.3
18.8
2.1
11.7
23.6
11.2
13.0
Dishman Pharma
Under Review
301
-
-
18.9
1.3
10.1
(7.2)
2.9
2.5
GSK Pharma
Neutral
2,385
-
-
40.7
5.5
30.5
30.6
28.9
26.5
Indoco Remedies
Sell
190
153
(19.6)
14.9
1.5
10.0
23.0
11.3
15.6
Ipca labs
Buy
414
540
30.3
17.3
1.3
8.8
24.7
12.4
11.0
Lupin
Buy
992
1,467
47.8
14.9
2.0
8.7
8.2
20.5
17.5
Sanofi India*
Neutral
4,007
-
-
26.1
2.7
16.0
9.2
23.9
25.8
Sun Pharma
Buy
483
558
16.0
19.5
3.2
14.3
8.0
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.
August 18, 2017
5
Sanofi India | 2QCY2017 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
2,564
2,919
Less: Excise duty
38
41
44
47
56
57
Net sales
1,707
1,875
2,049
2,206
2,508
2,862
Other operating income
102
103
144
162
162
162
Total operating income
1,809
1,978
2,193
2,369
2,671
3,025
% chg
14.1
9.3
10.9
8.0
12.8
13.2
Total expenditure
1,411
1,639
1,734
1,841
2,136
2,380
Net raw materials
820
974
1,012
1,065
1,254
1,374
Other mfg costs
82
93
106
115
130
149
Personnel
242
288
333
359
408
466
Other
267
283
283
302
343
391
EBITDA
296
236
315
366
372
482
% chg
27.0
7.3
8.3
9.3
10.3
11.3
(% of Net Sales)
17.3
12.6
15.4
16.6
14.8
16.8
Dep. & amortisation
92
97
113
131
147
155
EBIT
203
140
202
234
226
328
% 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
71
71
(% 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
459
561
% chg
38.7
3.8
4.8
5.8
6.8
7.8
Extraordinary Exp./(Inc.)
PBT (reported)
363
307
481
468
459
561
Tax
123.3
109.0
159.4
169.1
166.2
203.0
(% of PBT)
33.9
35.6
33.1
36.2
36.2
36.2
PAT (reported)
240
198
322
299
293
358
Extra-ordinary items
(25)
(67)
56
-
-
-
PAT after MI (reported)
266
264
321
297
290
354
ADJ. PAT
240
197
265
297
290
354
% chg
35.4
(17.8)
34.4
11.9
(2.2)
22.1
(% of Net Sales)
15.6
14.1
15.7
13.4
11.6
12.4
Basic EPS (`)
104
86
115
129
126
154
Fully Diluted EPS (`)
104
86
115
129
126
154
% chg
35.4
(17.8)
34.6
11.9
(2.2)
22.1
August 18, 2017
6
Sanofi India | 2QCY2017 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
2,163
2,677
Shareholders funds
1,347
1,486
1,627
1,736
2,186
2,700
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
2,229
2,744
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
2,177
2,874
Cash
264
469
572
559
986
1,515
Loans & advances
219
196
337
363
412
471
Other
464
598
336
646
778
888
Current liabilities
435
656
617
668
759
866
Net current assets
512
607
628
900
1,418
2,007
Deferred tax assets
(37)
(54)
(120)
(97)
(97)
(97)
Total assets
1,372
1,518
1,668
1,778
2,229
2,744
August 18, 2017
7
Sanofi India | 2QCY2017 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
91
61
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
366
344
(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)
178
(758)
Cash Flow from Financing
(496)
(1)
(257)
(470)
17
(918)
Inc./(Dec.) in Cash
(164)
204
103
(13)
428
(529)
Opening Cash balances
429
264
469
572
559
986
Closing Cash balances
264
469
572
559
986
1,515
August 18, 2017
8
Sanofi India | 2QCY2017 Result Update
Key ratios
Y/E Dec.
CY13
CY14
CY15
CY16
CY17E CY18E
Valuation Ratio (x)
P/E (on FDEPS)
38.5
46.8
34.8
31.1
31.8
26.1
P/CEPS
25.8
25.6
21.2
21.5
21.1
18.1
P/BV
6.9
6.2
5.7
5.3
4.2
3.4
EV/Sales
5.3
4.7
4.2
3.9
3.3
2.7
EV/EBITDA
30.3
37.1
27.4
23.7
22.1
16.0
Per Share Data (`)
EPS (Basic)
104.1
85.6
115.2
128.9
126.0
153.8
EPS (fully diluted)
104.1
85.6
115.2
128.9
126.0
153.8
Cash EPS
155.4
156.7
188.7
186.0
189.8
221.1
DPS
33.0
33.0
33.0
68.0
68.0
68.0
Book Value
584.8
645.2
707.4
754.6
950.3
1,173.8
Returns (%)
RoCE (Pre-tax)
15.7
10.2
14.8
17.1
16.5
23.9
Angel ROIC (Pre-tax)
22.4
14.6
21.1
24.4
23.5
34.0
ROE
18.8
14.4
19.3
21.6
21.1
25.8
Turnover ratios (x)
Inventory / Sales (days)
31
28
26
24
21
19
Receivables (days)
9
8
7
7
6
6
Payables (days)
24
21
20
19
16
15
August 18, 2017
9
Sanofi India | 2QCY2017 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
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. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate 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
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
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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)
August 18, 2017
10
