Sanofi India posted a strong 20 per cent growth in profit before tax (PBT), before exceptional items, for the June quarter (Q2), despite the lockdown leading to lower revenue. Sanofi’s financial year is from January to December.
During Q2, while some therapy areas were impacted by lockdown restrictions, Sanofi completed the slump sale of its Ankleshwar manufacturing facility as well as some of its products. Consequently, sales fell 5 per cent year-on-year.
The power brands and chronic portfolio, however, supported earnings. Analysts say, the portfolio is skewed towards high-growing chronic segment and along with its leadership in basal insulin (for diabetes), Sanofi has an edge in the current environment.
The strong brand portfolio includes diabetes management (Lantus, Amaryl M, Toujeo), cardiology products (Cardace), pain relief (Combiflam) and anti-allergic (Allegra & Avil) among others, and all are driving growth. For instance, in the month of June, Lanctus Cardace, Combiflam and Avil reported double-digit growth of up to 30 per cent year-on-year against a tepid 2.4 per cent growth of India Pharma market.
Thus, despite a fall in sales, Sanofi's operating profit grew by 12.3 per cent and margins expanded 580 basis points to 29.2 per cent, leading to a higher PBT. This, along with lower taxes led to a 40 per cent year-on-year jump in net profit.
Analysts expect the growth momentum to continue. Strong growth in the top five brands coupled with operating profit margin expansion (due to a favourable mix) points at sturdy earnings growth, say analysts at Sharekhan.
Sanofi has a robust portfolio to cater to India's under-penetrated diabetes market. Even the domestic cardiology market growth remains healthy. It grew 8 per cent year-on year in Q2 despite Pharma market's soft growth. Its other leading brands and their extensions should also aid growth.
Analysts say, Sanofi, with focus on domestic market, is better placed compared to peers, which are facing pricing pressure. Sanofi's products, which came under price control a few years back, have seen good increase in volumes (due to price reductions) while their yearly price hikes is in line with the wholesale price index. Thus, these products too are growing well.
Analysts at Elara Capital maintain their CY20 and CY21 earnings estimates and expect return ratios to surge by 600 basis point over CY19-21. This should support the premium valuations of Sanofi's stock, which is up 1.6 per cent since results. At Rs 7,694, it is trading at 29x CY21 earnings and analysts at Sharekhan see further 20 per cent upside over next 12 months. With elevated uncertainty across the globe due to the pandemic, Sanofi, with sturdy balance sheet and strong cash-generation, will be least impacted, say analysts.