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Sales recovery in the offing...

While Q4FY21 results are not strictly comparable on a YoY basis due to pandemic related challenges in the base year, FY21 revenues grew 5.3% YoY to | 4310 crore likely moderated by the decline in 'Duphaston' (gynaecology) sales alongside demand slowdown in some other therapies amid the pandemic. EBITDA margins expanded 290 bps YoY to 21.4% with an overall better operational performance. EBITDA for the fiscal grew 21.8% YoY to | 922 crore. PAT was up 16.5% YoY to | 691 crore in line with operational performance and lower other income.

“Power brands” continue to grow ahead of industry growth

Abbott India is one of the fastest growing listed MNC pharma companies. It has outperformed the industry on a consistent basis in women’s health, GI, metabolic, pain, CNS among others. The company’s top five brands including (Duphaston– gynaecological, Thyronorm– thyroid, Udiliv, Duphalac– both GI and Vertin- CNS) together posted revenue CAGR of ~13% in March 2017-21 (MAT basis). Thus, revenue growth has been driven by top brands (power brands). Additionally, continuous new launches and line extension in existing and new segments is also driving growth. We expect future launches of new products from key divisions, along with brand extensions and access to innovative molecules from global parent to drive growth.

Margin improvement with better return ratios

EBITDA margins have recovered from lows of 11.8% in FY14 [due to inclusion of one its top brand (Thyronorm) under price control] to 21.4% in FY21. Core margins of the company could have been even better after excluding marketing margins (related to Novo Nordisk diabetic portfolio). Apart from this, erstwhile tax amendments have had the effect of reducing its tax rate from 36% in FY19 to 25-26% from FY20 onwards. Continued new product launches, volume led growth in Abbott India’s top brands and intermittent price hikes in its portfolio provide comfort on overall financials. The company has also declared a | 275 dividend (final: | 120 + special: | 155) per share for FY21.

Valuation & Outlook

Covid-19 related disturbances notwithstanding, companies from the pharma MNC staple like Abbott continue to generate investor’s interest with robust and sustainable business model backed by stable growth, debt-free b/s, favourable market dynamics with doctor prescription stickiness and lower perceived risk factors. We continue to believe in Abbott’s strong growth track in power brands and capability in new launches on a fairly consistent basis (+100 launches in the last 10 years). We maintain BUY and arrive at a target price of | 19235 (vs. earlier | 19065) based on 40x FY23E EPS of | 480.9.

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