Recommendation from Pharmaceuticals Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

SANOFI INDIA. : KEEPING THE STOCK IN GOOD HEALTH

HERE IS WHY
✓High returns on capital employed
✓Strong brand presence
✓High net profit margin

A subsidiary of the global pharmaceutical giant Sanofi, Sanofi India is engaged in pharmaceutical manufacturing and sale.Its key therapeutic areas include diabetes (insulin and orals), cardiology, thrombosis, anti-infective, central nervous system, allergy and vitamins, and minerals and supplements. According to IQVIA, a global data and analytics company serving the life science industry, Sanofi India’s three brands – Lantus, Allegra and Combiflam – were amongst the top 100 pharmaceutical brands in India as of December 2021.

Sanofi India maintains its books as per the calendar year. It reported net sales of ₹2,956.6 crore in CY21 compared to ₹2,902 crore in CY20, indicating slight growth of 1.8 per cent. The insulin portfolio of the company delivered strong double-digit growth in 2021. The EBIDTA witnessed a sloppy growth of 4.2 per cent to ₹837 crore in CY21 as against ₹803 crore in the previous year. Although the top-line was quite sluggish, the bottom-line improved significantly.

The profit after tax (PAT) saw a high growth of nearly 98 per cent with an increase from ₹477.6 crore to ₹944.4 crore from CY20 to CY21, respectively.

However, on the liquidity front, a decrease of nearly 8.5 per cent can be seen in the cash flows with operating activities increasing from ₹611 crore in CY20 to ₹559 crore in CY21. For the latest quarter ended March 2022, revenue decreased by 2.5 per cent YoY to ₹707 crore from ₹725.1 crore in Q4CY20. On a sequential basis, the top-line was up by 2.78 per cent. PBIDT excluding other income was reported at ₹194.5 crore, up by 2.69 per cent as compared to the year-ago period and the corresponding margin was reported at 27.51 per cent, expanding by 139 basis points YoY.

PAT was reported at ₹238.4 crore, up by 63.4 per cent from ₹145.9 crore in the same quarter for the previous fiscal year. The PAT margin improved significantly to 33.72 per cent in Q1CY22, expanding from 20.12 per cent in Q1CY21. As far as the stakeholders are concerned, they have not been disappointed as the ROE stood at 44.6 per cent and the ROCE stood even higher at 58 per cent. Also, shareholders need not worry about the debt portion as the company is debt-free. The stock is trading relatively cheaper at around price-to-earnings multiple of 26 compared to the industry PE of nearly 32. The company also creates value at hand for shareholders with dividend yield at 2.65 per cent.

The company’s flagship brand ‘Lantus’ is presently ranked third in the Indian insulin industry and was consumed by over 7.3 lakh patients during 2021. The oral anti-diabetic drug portfolio continued to grow in volumes, led by ‘Amaryl’. Its product group with the flagship brands ‘Allegra’ and ‘Avil’ lead in the allergy category with a strong 14 per cent market share. In the cardiology segment, the ‘Cardace’ brand continues to be a leading inhibitor prescribed by cardiologists, diabetologists and consulting physicians. The scrip is trading slightly above its 52-week low of ₹6,320.70, thus presenting a good buying opportunity for bargain hunters. Considering the financials and the company’s business and market share, we recommend BUY.