3QCY18 Result Update Institutional Equities Sanofi India Reuters: SANO.BO; Bloomberg: SANL IN Robust Performance Sanofi India s revenues in 3QCY18 stood at Rs7,438mn which were above our/consensus estimate by 10.4%/9.2%, respectively. Revenues grew 8.8%/11.4% on QoQ/YoY basis, respectively. The company has not disclosed the break-up of revenues (between domestic and export markets) and we believe the outperformance was driven by higher exports during the quarter as gross margin was 100bps down QoQ and cost of sales grew 12.5% QoQ, faster than sales, indicating an adverse product/business mix. Cost of sales also carries the impact of depreciation of the Indian rupee or INR against the euro and US dollar. Sanofi India imports from its group company certain products that it sells in Indian markets. We retain our Buy rating on the stock with a target price of Rs7,570. Expenses: COGS: Rs3,093mn, up 12.6%/24.2% QoQ/YoY, respectively. Staff costs: Rs1,046mn, up 4.2%/8.2% QoQ/YoY, respectively. Other expenses: Rs1,426mn, flat QoQ and up 3.3% YoY. EBITDA: At Rs1,873mn, EBITDA was above our/consensus estimate by 13.1%/12.4%, respectively. EBITDA grew 13.9%/2.5% on QoQ/YoY basis, respectively. EBITDA margin of 25.2% showed an expansion of 112bps QoQ and a contraction of 234bps YoY. Sequential EBITDA growth has mainly been on account of revenue growth. PAT: At Rs1,192mn, PAT was above our/consensus estimate by 16.9%/15.7%, respectively. PAT was up 19.7%/2.5% QoQ/YoY, respectively. PAT margin stood at 16%, showing an expansion of 146bps QoQ and a contraction of 140bps YoY. EPS: For the quarter, EPS stood at Rs51.8. Outlook and valuation: We have retained Buy rating on Sanofi India (SIL) with a target price of Rs7,570, which is based on 28x CY20E earnings. We expect SIL s revenues to clock a 11% revenue CAGR while net earnings should grow 24% over CY17-CY20E. Earnings should outpace revenue growth as the high-margin portfolio is growing faster than the rest of the business. The key growth drivers for the company include its insulin portfolio (led by flagship brand Lantus), Allegra and recently launched Combiflam topical pain relief gel/spray. BUY Sector: Pharmaceuticals CMP: Rs5,785 Target Price: Rs7,570 Upside: 31% Vishal Manchanda Research Analyst vishal.manchanda@nirmalbang.com +91 9737437148 Madhurima Kane Research Associate madhurima.kane@nirmalbang.com +91 6273-8168 Key Data Current Shares O/S (mn) 23.0 Mkt Cap (Rsbn/US$bn) 133.4/1.8 52 Wk H / L (Rs) 6,775/4,272 Daily Vol. (3M NSE Avg.) 14,239 Price Performance (%) 1 M 6 M 1 Yr Sanofi India (6.9) 19.1 29.5 Nifty Index (5.6) (3.3) (0.5) Source: Bloomberg Y/E December (Rsmn) 3QCY17 2QCY18 3QCY18 YoY (%) QoQ (%) 9MCY17 9MCY18 YoY (%) Revenues from operations 6,675 6,836 7,438 11.4 8.8 18,210 20,451 12.3 Raw material costs 2,490 2,748 3,093 24.2 12.6 7,308 8,338 14.1 % of revenues 37.3 40.2 41.6 428bps 138bps 40.1 40.8 64bps Staff costs 967 1,004 1,046 8.2 4.2 2,801 3,006 7.3 % of revenues 14.5 14.7 14.1 (42bps) (62bps) 15.4 14.7 (68bps) Other expenses 1,381 1,439 1,426 3.3 (0.9) 4,095 4,245 3.7 % of revenues 20.7 21.1 19.2 (7bps) (9bps) 22.5 20.8 (173bps) EBITDA 1,837 1,645 1,873 2.0 13.9 4,006 4,862 21.4 EBITDA margin (%) 27.5 24.1 25.2 (234bps) 112bps 22.0 23.8 177bps Other income 208 208 262 26.0 26.0 651 696 6.9 Interest costs - - - - - 4 - (100.0) Depreciation 257 254 260 1.2 2.4 765 768 0.4 PBT 1,788 1,599 1,875 4.9 17.3 3,888 4,790 23.2 Tax 625 603 683 9.3 13.3 1,388 1,777 28.0 Tax rate (%) 35.0 37.7 36.4 147bps (128bps) 35.7 37.1 140bps PAT 1,163 996 1,192 2.5 19.7 2,500 3,013 20.5 PAT margin (%) 17.4 14.6 16.0 (140bps) 146bps 13.7 14.7 100bps 1 November 2018
Exhibit 1: Actual performance versus our estimates, Bloomberg consensus estimates (Rsmn) Actual NBIE estimate Var.(%) Consensus estimate Var.(%) Revenues 7,438 6,739 10.4 6,809 9.2 EBITDA 1,873 1,656 13.1 1,662 12.7 EBITDA margin (%) 25.2 24.6 61bps 24.4 77bps PAT 1,192 1,020 16.9 1,030 15.7 PAT margin (%) 16.0 15.1 89bps 15.1 90bps Exhibit 2: Key financials Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY20E Net sales 24,197 24,914 27,514 30,434 33,715 EBITDA 5,351 5,372 6,806 8,214 9,665 Net profit 3,042 3,260 4,122 5,087 6,143 Adjusted EPS (Rs) 132.1 141.6 179.0 220.9 266.7 EPS growth (%) (5.4) 7.2 26.4 23.4 20.7 EBITDA margin (%) 22.1 21.6 24.7 27.0 28.7 P/E (x) 43.8 40.9 32.3 26.2 21.7 P/BV (x) 7.1 6.6 6.1 5.5 5.0 EV/EBITDA (x) 23.9 23.4 18.3 14.9 12.4 RoCE (%) 22.9 22.3 27.0 30.7 33.4 RoE (%) 16.7 16.7 19.5 22.0 24.1 Exhibit 3: Quarterly trends Particulars (Rsmn) 1QCY17 2QCY17 3QCY17 4QCY17 1QCY18 2QCY18 3QCY18 Revenues 5,127 5,558 6,266 6,317 5,779 6,395 7,006 Gross profit 3,182 3,535 4,185 3,971 3,680 4,088 4,345 EBITDA 1,015 1,154 1,837 1,344 1,344 1,645 1,873 EBIT 762 899 1,580 1,087 1,090 1,391 1,613 PBT 917 1,183 1,788 1,258 1,316 1,599 1,875 PAT 600 737 1,163 760 825 996 1,192 Margin (%) 1QCY17 2QCY17 3QCY17 4QCY17 1QCY18 2QCY18 3QCY18 Gross profit 57.6 58.9 62.7 59.2 59.6 59.8 58.4 EBITDA 18.4 19.2 27.5 20.0 21.8 24.1 25.2 EBIT 13.8 15.0 23.7 16.2 17.6 20.3 21.7 PBT 16.6 19.7 26.8 18.8 21.3 23.4 25.2 PAT 11.7 13.3 18.6 12.0 14.3 15.6 17.0 2 Sanofi India
Financial statements Exhibit 4: Income statement Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY20E Net sales 24,197 24,914 27,514 30,434 33,715 % growth 10.3 3.0 10.4 10.6 10.8 Raw material costs 13,547 14,873 16,432 18,334 20,483 Staff costs 3,553 3,685 3,906 4,219 4,725 Other expenses 4,643 5,816 5,720 5,902 6,093 Total expenditure 18,846 19,542 20,708 22,220 24,050 EBITDA 5,351 5,372 6,806 8,214 9,665 % growth 16.6 0.4 26.7 20.7 17.7 EBITDA margin (%) 22.1 21.6 24.7 27.0 28.7 Other income 664 807 803 965 1,203 Interest costs 23 11 11 11 11 Gross profit 10,650 10,041 11,082 12,099 13,232 % growth (9.9) (5.7) 10.4 9.2 9.4 Depreciation 1,188 1,022 1,091 1,138 1,161 Profit before tax 4,804 5,146 6,507 8,030 9,696 % growth (0.1) 7.1 26.4 23.4 20.7 Tax 1,762 1,886 2,385 2,943 3,554 Effective tax rate (%) 36.7 36.6 36.6 36.6 36.6 Net profit 3,042 3,260 4,122 5,087 6,143 % growth (5.4) 7.2 26.4 23.4 20.7 Adjusted EPS (Rs) 132.1 141.6 179.0 220.9 266.7 % growth (5.4) 7.2 26.4 23.4 20.7 Exhibit 6: Balance sheet Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY20E Equity 230 230 230 230 230 Reserves 18,600 20,034 21,774 23,921 26,514 Net worth 18,830 20,264 22,004 24,151 26,744 Total loans - - - - - Deferred tax liabilities 1,013 1,031 1,031 1,031 1,031 Other non-current liabilities 548 465 514 568 629 Total liabilities 20,391 21,760 23,548 25,750 28,404 Fixed assets including CWIP 5,851 5,705 5,771 5,541 5,039 Goodwill & intangible Assets 2,654 2,286 2,286 2,286 2,286 Long-term loans & advances 56 4,055 4,055 4,055 4,055 Other non-current assets 1,098 1,292 1,427 1,578 1,748 Inventories 4,931 4,156 4,587 5,008 5,477 Debtors 1,448 1,944 2,147 2,375 2,631 Cash and cash equivalents 5,610 7,299 8,770 10,933 13,789 Other current assets 3,764 1,033 1,141 1,262 1,398 Total current assets 15,753 14,432 16,645 19,578 23,294 Creditors 2,308 3,269 3,608 3,939 4,308 Other current liabilities/provisions 2,713 2,741 3,027 3,348 3,709 Total current liabilities 5,021 6,010 6,635 7,287 8,017 Net current assets 10,732 8,422 10,010 12,290 15,277 Total assets 20,391 21,760 23,548 25,750 28,404 Exhibit 4: Exhibit 5: Cash flow Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY20E CY1 PBT 4,804 5,146 6,507 8,030 9,696 (Inc.)/dec. in working capital (12) 803 (117) (118) (131) Cash flow from operations 4,792 5,949 6,390 7,913 9,565 Other income (604) (647) (803) (965) (1,203) Depreciation 1,188 1,022 1,091 1,138 1,161 Interest 23 11 11 11 11 Tax paid (-) (2,178) (1,984) (2,385) (2,943) (3,554) Net cash from operations 3,221 4,351 4,305 5,153 5,980 Capital expenditure (-) (687) (565) (1,157) (908) (658) Net cash after capex 2,534 3,786 3,148 4,245 5,322 Other investing activities (863) (222) 668 814 1,033 Cash from financial activities (1,802) (1,884) (2,345) (2,896) (3,500) Change in cash balance (131) 1,680 1,471 2,163 2,855 Opening cash balance 5,666 5,535 7,299 8,770 10,933 Closing cash balance 5,535 7,215 8,770 10,933 13,789 Exhibit 5: Exhibit 7: Key ratios Y/E December CY16 CY17 CY18E CY19E CY20E Profitability & return ratios EBITDA margin (%) 22.1 21.6 24.7 27.0 28.7 EBIT margin (%) 17.2 17.5 20.8 23.3 25.2 Net profit margin (%) 12.6 13.1 15.0 16.7 18.2 RoE (%) 16.7 16.7 19.5 22.0 24.1 RoCE (%) 22.9 22.3 27.0 30.7 33.4 Working capital & Liquidity ratios Receivables (days) 21.8 24.8 27.1 27.1 27.1 Inventory (days) 166.6 165.2 144.0 144.7 144.6 Payables (days) 76.8 101.4 113.2 113.8 113.7 Working capital days 111.6 88.6 57.9 58.0 58.0 Current ratio (x) 3.1 2.4 2.5 2.7 2.9 Quick ratio (x) 2.2 1.7 1.8 2.0 2.2 Valuation ratios EV/Sales (x) 5.3 5.1 4.5 4.0 3.5 EV/EBITDA (x) 23.9 23.4 18.3 14.9 12.4 P/E (x) 43.8 40.9 32.3 26.2 21.7 P/BV (x) 7.1 6.6 6.1 5.5 5.0 3 Sanofi India
Rating track Date Rating Market price Target price (Rs) 6 September 2018 Buy 6,516 7,570 26 October 2018 Buy 5,785 7,570 Rating track graph 7,000 6,500 6,000 5,500 5,000 4,500 4,000 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Not Covered Covered 4 Sanofi India
DISCLOSURES This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL 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. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I/We, Mr. Vishal Manchanda, the research analysts and Madhurima Kane, the research associate are the author of this report, hereby certify that the views expressed in this research report accurately reflects my/our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 5 Sanofi India
Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions. The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL or any of its affiliates or employees 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. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This information is subject to change without any prior notice. NBEPL reserves its absolute discretion and right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, NBEPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employees of NBEPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBEPL, nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in connection with the use of the information contained in this report. Copyright of this document vests exclusively with NBEPL. Our reports are also available on our website www.nirmalbang.com Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Email Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com +91 22 6273 8017 / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com +91 22 6273 8230, +91 22 6636 8833 Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com +91 22 6273 8100/8101, +91 22 6636 8831 Michael Pillai Dealing Desk michael.pillai@nirmalbang.com +91 22 6273 8102/8103, +91 22 6636 8830 Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai-400013. Board No. : 91 22 6273 8000/1; Fax. : 022 6273 8010 6 Sanofi India