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Sanofi Q4CY21 concall highlights

Sanofi India Limited (SANL) hosted an investor call to discuss the results for Q4CY21 and CY21. We have summarised the highlights below:

* Excluding the divestment of nutraceutical brands, like-to-like domestic sales growth in CY21 was ~13%; excluding COVID-19 impact, growth was in line with the domestic market.

* Sequential 8.8% decline in sales was due to divestment of nutraceutical brands (~5% of domestic sales) and higher demand of Clexane in H1 due to higher hospitalization in the pandemic. Clexane sales were higher by 12-15% from the general expectation on an annualized basis.

* Exports formed ~13% of CY21 revenue; the company exports to group companies in Australia, large parts of Europe, Sri Lanka and Russia. Exports business is expected to be driven by the low-cost manufacturing advantage in India.

* Other expenditure stood at 20.9% of sales, as against 15.4/18.1% QoQ/YoY, mainly due to MRs resuming their ground activity as well as product cycle impact and higher CSR.

* SANL’s focus on digitalisation is mainly to the increased reach in tier II/III cities; digitalisation is also expected to improve the overall operational performance. 

* Insulin volume grew ~5% YoY in CY21. Insulin penetration in India is ~16% which is lower than other countries, providing enough headroom for further increase. Hence, SANL focuses more on market penetration than gaining market share.

* Focus to expand in tier II/III cities by increase in physician reach using hybrid method of both physical and digital connection as well as educating more physicians.

* Media articles suggests Lantus may come under NLEM which would impact the brand’s revenues; however, it is being traded from group company at arms-length which will help cushion the impact on the profitability.

* SANL is also exploring tie-ups with other companies for oral diabetic products.

* Innovation in brand expansion will continue in key brands like Combiflam and Allegra. Tropical version of Combiflam performed subpar. Another example is the launch of Toujeo with reusable cartridges in India (1st in the world).

* Established portfolio (~50% of overall domestic sales), mainly comprising key brands, is likely to continue outperforming domestic growth.

* Soframycin sales in CY21 were Rs700-750mn. Its divestment was completed in Jan’22.

* Likely to launch more cardiovascular products from parent’s (Sanofi S.A.) pipeline.  NLEM contribution stood at 18% of domestic sales.

Valuations and risks:

Maintain ADD rating with a target price of Rs8,107/share based on 30x Jun’23E EPS. Key downside risks: Addition of key drugs in NLEM, product concentration, government intervention and presence of unlisted promoter company.

Valuations

We expect SANL to witness earnings CAGR of 6.3% over CY21-CY23E, driven by revenue CAGR of 6.9% with EBITDA margin gradually improving as contribution of domestic business increases. We expect return ratios (RoE and RoCE) to improve with growing margins. The stock currently trades at valuations of 28.2x CY22E and 25.5x CY23E earnings and EV/EBITDA multiple of 19.3x CY22E and 17.4x CY23E. We remain positive on the long-term outlook considering the company’s strong growth trajectory supported by chronic exposure, established brand franchise, healthy return profile and rich cash reserves. Maintain ADD rating on the stock with a target price of Rs8,107/share based on 30x Jun’23E earnings.

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