Aventis Result Update
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Aventis Pharma reported lower than estimated 1QCY2010 results. Net sales grew 9.8% to Rs251.4cr driven by 11.1% domestic growth, but exports declined 5.9%. Operating profit margin contracted 256bps to 14.5% due to lower gross margins and higher expenses. Net profit fell 10.9% to Rs36.1cr. The brokerage maintains a Reduce rating and target price of Rs1,658, valuing the company at 18x forward earnings.
Aventis Result Update
- 1. 1QCY2010 Result Update I Pharmaceutical April 27, 2010 Aventis Pharma REDUCE CMP Rs1,821 Performance Highlights Target Price Rs1,658 Investment Period 12 Months Aventis Pharma (Aventis) has reported lower than estimated1QCY2010 numbers. Net Sales at Rs251.4cr (Rs228.9cr) registered 9.8% yoy growth Stock Info driven by the Domestic business, which grew 11.1% to Rs197.2cr (Rs177.5cr) on the back of Volume growth. However, the company’s Exports de-grew 5.9% Sector Pharmaceutical to Rs54.2cr (Rs57.6cr). The company reported 256bp contraction in OPM to Market Cap (Rs cr) 4,193 14.5% (17.0%) due to lower Gross Margins and higher Employee expenses. Net Profit stood at Rs36.1cr (Rs40.5cr), down 10.9% due to lower OPM and Beta 0.2 Other Income. We recommend a Reduce on the stock. 52 WK High / Low 1,894/ 910 Below expectation with OPM disappointing: Aventis reported Net Sales of Rs251.4cr (Rs228.9cr), up 9.8% yoy driven by the Domestic business, which Avg. Daily Volume 4875 grew 11.1% to Rs197.2cr (Rs177.5cr) on the back of Volume growth. Face Value (Rs) 10 Excluding Sales of the Rabipur vaccine, Domestic Sales grew by a stellar 21.7%. However, the Export Segment de-grew 5.9% to Rs54.2cr (Rs57.6cr). BSE Sensex 17,691 Aventis reported OPM of 14.5% (17.0%) for the quarter, which contracted by Nifty 5,308 256bp and was below our expectation of 16.0%. Net Profit stood at Rs36.1cr (Rs40.5cr), down 10.9% on the back of lower OPM and Other Income. Other Reuters Code AVPH.BO Income fell by 29.4% yoy to Rs22.6cr (Rs 32.0cr). Bloomberg Code AVEN@IN Outlook and Valuation: Aventis along with having strong parentage has solid Shareholding Pattern (%) presence in India with a market share of 1.63% and mainly caters to the CVS, Promoters 60.4 Anti-Diabetic, Oncology, CNS and Respiratory Therapeutic Segments. We expect Net Sales to post CAGR of 11.9% to Rs1,220cr and EPS to clock CAGR MF/Banks/Indian FIs 24.2 of 16.1% to Rs92.1 over CY2009-11E. At Rs1,821, the stock is trading at 22.5x and 19.8x CY2010E and CY2011E Earnings, respectively. Adjusting the FII/NRIs/OCBs 9.6 expected cash per share of Rs316 as on CY2011E, the company is trading at Indian Public 5.8 21.5x CY2010E and 18.7x CY2011E Earnings. Given the rich valuations, we recommend a Reduce on the stock, with a Target Price of Rs1,658, valuing the Abs. (%) 3m 1yr 3yr company at 18x (5-year historical average PE) CY2011E Earnings Sensex 8.6 55.6 27.2 Aventis 14.0 95.5 47.5 Key Financials Y/E December (Rs cr) CY2008 CY2009 CY2010E CY2011E Net Sales 983.3 974.4 1,086.8 1,220.5 % chg 12.6 (0.9) 11.5 12.3 Net Profit 166.2 157.4 186.1 212.2 % chg 15.1 (5.3) 18.2 14.0 EPS (Rs) 72.2 68.4 80.8 92.1 EBITDA Margin (%) 18.9 15.2 17.8 18.5 P/E (x) 25.2 26.6 22.5 19.8 Sarabjit Kour Nangra RoE (%) 21.6 17.9 18.8 18.9 Tel: 022 – 4040 3800 Ext: 343 RoCE (%) 21.8 14.8 17.3 18.0 E-mail: sarabjit@angeltrade.com P/BV (x) 5.1 4.5 4.0 3.5 Sushant Dalmia EV/Sales (x) 3.8 3.7 3.3 2.8 Tel: 022 – 4040 3800 Ext: 320 EV/EBITDA (x) 19.9 24.4 18.4 15.4 E-mail: sushant.dalmia@angeltrade.com Source: Company, Angel Research. 1 Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
- 2. Aventis Pharma I 1QCY2010 Result Update Exhibit 1: 1QCY2010 Performance Y/E Dec (Rs cr) 1QCY2010 1QCY2009 % chg. CY2009 CY2008 % chg. Net Sales 251.4 228.9 9.8 974.4 983.3 (0.9) Other Income 22.6 32.0 (29.4) 111.1 92.6 20.0 Total Income 274.0 260.9 5.0 1085.5 1075.9 0.9 PBIDT 36.4 39.0 (6.7) 147.8 185.5 (20.4) OPM (%) 14.5 17.0 15.2 18.9 Interest 0.0 0.0 - 0.0 0.2 - Depreciation & Amortisation 4.3 4.2 2.4 17.3 18.2 (4.9) Profit before tax 54.7 66.8 (18.1) 241.6 256.6 (5.8) Provision for Taxation 18.6 26.3 (29.3) 84.1 90.8 (7.4) Net Profit 36.1 40.5 (10.9) 157.5 166.2 (5.1) EPS (Rs) 15.7 17.6 (10.9) 68.4 72.2 (5.1) Source: Company, Angel Research Key Highlights Revenues up 10%, marginally below expectation: Aventis reported Net Sales of Rs251.4cr (Rs228.9cr), up 9.8% yoy driven by the Domestic business, which grew 11.1% to Rs197.2cr (Rs177.5cr) driven by Volume growth. Excluding Sales of the Rabipur vaccine, Domestic Sales grew by a stellar 21.7%. However, the Export Segment de-grew 5.9% to Rs54.2cr (Rs57.6cr). Exhibit 2: Sales Trend 250 203 197 55.0 178 189 183 200 150 35.0 (Rs cr) 100 58 61 56 54 54 (%) 15.0 50 0 (5.0) (50) (100) (25.0) 1QCY2009 2QCY2009 3QCY2009 4QCY2009 1QCY2010 Domestic Export Domestic Growth (YoY) Export Growth (YoY) Source: Company, Angel Research OPM contracts on lower Gross Margins, higher Employee Expenses: Aventis reported OPM of 14.5% (17.0%) for the quarter, which contracted by 256bp and was below our expectation of 16.0%. Raw Material cost including purchase of finished goods increased 13.6% to Rs126.1cr (Rs 111.0cr), while Employee expenses increased 15.3% to Rs37.6cr (Rs32.6cr). April 27, 2010 2
- 3. Aventis Pharma I 1QCY2010 Result Update Exhibit 3: OPM Trend 25.0 21.2 20.0 17.0 (%) 15.0 15.3 14.5 10.0 6.9 5.0 0.0 1QCY2009 2QCY2009 3QCY2009 4QCY2009 1QCY2010 Source: Company, Angel Research Bottom-line de-grew on OPM contraction, low Other Income: Aventis reported Net Profit of Rs36.1cr (Rs40.5cr), down 10.9% on the back of lower OPM and Other Income. The company reported Other Income of Rs22.6cr (Rs 32.0cr), down 29.4% yoy. Other Takeaway Aventis has indicated that it would be incurring planned expenditure in CY2010 on two of its projects, viz. a) ‘Prayas’- a high-quality low-cost rural initiative for rural penetration, and b) Entering the OTC market, which would lead to future growth. Outlook and Valuation Aventis along with a strong parentage has a solid presence in India with a market share of 1.63% and mainly catering to the CVS, Anti-Diabetic, Oncology, CNS and Respiratory Therapeutic Segments. Five brands of the company, viz. Cardace, Combiflam, Amaryl, Lantus and Allegra are among the Top-100 brands in the Domestic Formulation market. To drive future growth, the company plans to increase its rural penetration as well as enter the OTC market. We expect Net Sales to post CAGR of 11.9% to Rs1,220cr and EPS to clock CAGR of 16.1% to Rs92.1 over CY2009-11E. At Rs1,821, the stock is trading at 22.5x and 19.8x CY2010E and CY2011E Earnings, respectively. Adjusting the expected cash per share of Rs316 as on CY2011E, the company is trading at 21.5x CY2010E and 18.7x CY2011E Earnings. Given the rich valuations, we recommend a Reduce on the stock, with a Target Price of Rs1,658, valuing the company at 18x (5-year historical average PE) CY2011E Earnings. Exhibit 4: One-year forward PE Band 2,500 25x 2,000 20x 1,500 (Rs) 15x 1,000 10x 500 0 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Source: C-line, Angel Research April 27, 2010 3
- 4. Aventis Pharma I 1QCY2010 Result Update Profit & Loss Statement (Rs cr) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E Gross sales 936.7 931.7 1,026.5 995.8 1,120.1 1,258.2 Less: Excise duty 52.7 58.2 43.2 21.4 33.4 37.7 Net Sales 884.0 873.5 983.3 974.4 1,086.8 1,220.5 Other operating income 1.6 22.7 36.0 52.4 53.5 59.9 Total operating income 885.6 896.2 1,019.3 1,026.8 1,140.3 1,280.4 % chg 9.6 1.2 13.7 0.7 11.0 12.3 Total Expenditure 663.3 705.2 797.8 826.7 893.2 995.3 Net Raw Materials 428.6 422.5 476.3 482.0 501.1 559.1 Other Mfg costs 15.5 17.3 41.3 45.0 50.2 56.3 Personnel 78.5 103.7 119.2 144.0 162.5 186.9 Other 140.6 161.6 160.9 155.7 179.5 193.0 EBITDA 220.7 168.4 185.5 147.8 193.6 225.2 % chg 0.3 (23.7) 10.2 (20.4) 31.0 16.3 (% of Net Sales) 25.0 19.3 18.9 15.2 17.8 18.5 Depreciation& Amortisation 17.8 19.3 18.2 17.3 22.0 23.8 EBIT 202.9 149.1 167.3 130.4 171.6 201.4 % chg 0.4 (26.5) 12.2 (22.1) 31.5 17.4 (% of Net Sales) 22.9 17.1 17.0 13.4 15.8 16.5 Interest & other Charges 0.2 0.2 0.3 0.1 - - Other Income 45.5 51.3 56.6 58.7 57.6 61.7 (% of PBT) 18.2 23.0 21.8 24.3 20.4 19.1 Share in profit of Associates - - - - - - Recurring PBT 249.8 222.8 259.5 241.5 282.7 323.0 % chg 5.9 (10.8) 16.5 (7.0) 17.1 14.2 PBT (reported) 249.8 222.8 259.5 241.5 282.7 323.0 Tax 80.4 78.4 93.3 84.0 96.6 110.8 (% of PBT) 32.2 35.2 36.0 34.8 34.2 34.3 PAT (reported) 169.4 144.4 166.2 157.4 186.1 212.2 ADJ. PAT 169.4 144.4 166.2 157.4 186.1 212.2 % chg 16.7 (14.7) 15.1 (5.3) 18.2 14.0 (% of Net Sales) 19.2 16.5 16.9 16.2 17.1 17.4 Basic EPS (Rs) 73.5 62.7 72.2 68.4 80.8 92.1 Fully Diluted EPS (Rs) 73.5 62.7 72.2 68.4 80.8 92.1 % chg 16.7 (14.7) 15.1 (5.2) 18.1 14.0 April 27, 2010 4
- 5. Aventis Pharma I 1QCY2010 Result Update Balance Sheet (Rs cr) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E SOURCES OF FUNDS Equity Share Capital 23.0 23.0 23.0 23.0 23.0 23.0 Reserves& Surplus 585.2 683.8 806.1 908.8 1,029.6 1,167.3 Shareholders Funds 608.2 706.9 829.1 931.8 1,052.6 1,190.3 Total Loans - - - - - - Total Liabilities 608.2 706.9 829.1 931.8 1,052.6 1,190.3 APPLICATION OF FUNDS Gross Block 284.1 304.3 320.9 334.6 365.2 386.1 Less: Acc. Depreciation 151.7 168.7 178.1 189.6 211.6 235.4 Net Block 132.4 135.6 142.8 145.0 153.6 150.7 Capital Work-in-Progress 13.2 9.3 6.3 27.1 8.0 8.0 Investments 5.3 5.3 5.2 5.2 5.2 5.2 Current Assets 694.2 753.9 895.7 1,013.5 1,060.9 1,220.1 Cash 386.1 390.6 497.4 586.0 622.8 728.8 Loans & Advances 80.8 124.9 136.3 143.7 102.2 114.7 Other 227.3 238.3 262.0 283.9 335.9 376.6 Current liabilities 250.0 209.9 236.2 273.5 192.0 212.8 Net Current Assets 444.2 544.0 659.5 740.0 868.8 1,007.3 Deferred Tax Assets 13.1 12.6 15.3 14.6 16.9 19.1 Total Assets 608.2 706.8 829.1 931.8 1,052.5 1,190.3 Cash Flow Statement (Rs cr) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E Profit before tax 249.8 222.8 259.5 241.5 282.7 323.0 Depreciation 17.8 18.5 18.2 17.3 22.0 23.8 (Inc)/Dec in Working (6.6) (4.3) (20.8) 4.0 (92.0) (32.5) Capital Less: Other income 1.6 22.7 36.0 52.4 53.5 59.9 Direct taxes paid 99.7 97.4 98.1 92.2 99.0 113.0 Cash Flow from 159.8 116.9 122.8 118.1 60.2 141.4 Operations (Inc.)/Dec.in Fixed Assets (23.3) (17.8) (23.7) (41.4) (11.5) (20.9) (Inc.)/Dec. in Investments 0.1 - 0.1 0.0 - - Other income 1.6 22.7 36.0 52.4 53.5 59.9 Cash Flow from Investing (21.6) 4.9 12.4 11.1 42.0 39.0 Issue of Equity - - - - - - Inc./(Dec.) in loans - - - - - - Dividend Paid (Incl. Tax) (42.0) (84.3) (43.1) (43.1) (65.4) (74.4) Others (4.4) (33.0) 14.7 2.5 - - Cash Flow from Financing (46.4) (117.2) (28.4) (40.6) (65.4) (74.4) Inc./(Dec.) in Cash 91.8 4.5 106.8 88.6 36.8 106.0 Opening Cash balances 294.3 386.1 390.6 497.4 586.0 622.8 Closing Cash balances 386.1 390.6 497.4 586.0 622.8 728.8 April 27, 2010 5
- 6. Aventis Pharma I 1QCY2010 Result Update Key Ratios Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E Valuation Ratio (x) P/E (on FDEPS) 24.8 29.0 25.2 26.6 22.5 19.8 P/CEPS 22.4 25.6 22.7 24.0 20.2 17.8 P/BV 6.9 5.9 5.1 4.5 4.0 3.5 Dividend yield (%) 1.1 1.5 0.9 1.1 1.3 1.5 EV/Sales 4.3 4.4 3.8 3.7 3.3 2.8 EV/EBITDA 17.3 22.6 19.9 24.4 18.4 15.4 EV / Total Assets 6.3 5.4 4.5 3.9 3.4 2.9 Per Share Data (Rs) EPS (Basic) 73.5 62.7 72.2 68.4 80.8 92.1 EPS (fully diluted) 73.5 62.7 72.2 68.4 80.8 92.1 Cash EPS 81.3 71.1 80.1 75.9 90.4 102.5 DPS 20.0 27.6 16.0 20.0 24.2 27.6 Book Value 264.1 306.9 360.0 404.6 457.0 516.8 Dupont Analysis EBIT margin 22.9 17.1 17.0 13.4 15.8 16.5 Tax retention ratio 67.8 64.8 64.0 65.2 65.8 65.7 Asset turnover (x) 4.0 3.3 3.1 3.0 2.9 2.9 RoIC (Post-tax) 61.9 36.8 34.3 26.4 30.6 31.1 Returns (%) RoCE (Pre-tax) 36.0 22.7 21.8 14.8 17.3 18.0 Angel RoIC (Pre-tax) 94.2 57.8 52.9 40.5 46.3 46.0 RoE 29.9 22.0 21.6 17.9 18.8 18.9 Turnover ratios (x) Asset Turnover (Gross 4.2 3.0 3.3 3.1 3.3 3.4 Block) Inventory / Sales (days) 61 69 63 72 77 76 Receivables (days) 25 26 26 25 22 25 Payables (days) 38 47 46 49 44 37 WC cycle (ex-cash) (days) 115 137 136 147 139 132 Solvency ratios (x) Net debt to equity (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) Net debt to EBITDA (1.7) (2.3) (2.7) (4.0) (3.2) (3.2) Interest Coverage (EBIT / 1,115.8 774.9 492.1 1,863.1 - - Interest) April 27, 2010 6
- 7. Aventis Pharma I 1QCY2010 Result Update Research Team Tel: 022- 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com DISCLAIMER 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. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. 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. 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, and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited nor its directors, employees and affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Disclosure of Interest Statement Aventis Pharma 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies’ Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies. Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800 Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 April 27, 2010 7