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Analyst call highlights

Sanofi India Limited’s (SANL) is poised to grow owing to its high chronic exposure in the domestic market supported by strong balance sheet with deep cash reserves, and strong brand equity built over the years. We cover the highlights from its virtual investor meet below:

* Company believes that its performance has been resilient during the past few months as it was not materially affected by any breakdown of logistics or shortage of raw materials as well as higher exposure to chronic therapies (diabetic & cardiac).

* Lockdown caused a postponement of elective surgeries as well as large part of ICU beds were utilized for COVID-19 patients. This negatively affected drugs like Targocid but on the other hand inclusion of Clexane in the COVID-19 drug regime saw a sharp demand in it. However, with declining cases it has normalised.

* Company believes that there is enough headroom in the diabetology space in India to grow with ~50% of ~100mn patients untreated and <15% insulisation rate. SANL will continue to focus on basal insulin as a growth area and consider premix insulin as the opportunity grows. Although global strategy is moving away from basic research in diabetology, company is confident in focusing on this therapeutic segment by using a partnership model.

* SANL plans to grow by launching new products in the focus therapies (diabetes, cardiac, allergy and pain management) including line extensions for its established products. However, company will not be launching Insulin Aspart and Insulin Lispro from the global portfolio in India in the near term.

* Another growth lever would be scaling up digital initiatives which saw an acceleration due to the pandemic. SANL witnessed higher adoption of virtual engagement between HCPs and the ground force. Educating doctors and providing mentor-mentee support in the rural areas and towns would improve access sustainable. Primary focus in smaller cities is capacity building. SANL believes hybrid model (mix of physical and digital engagement) is the way forward.

* Company is also working on self-medication which is witnessing accelerated growth. This was aided by sharp demand in online pharmacies especially for cardiac and hypertension patients. Research indicates ~70mn households would use online pharmacies by 2025 and ~30% patients would continue to use tele-medicine post normalisation. SANL portfolio in self-medication is limited to allergy and pain therapies but has lot of growth potential (even in the OTC market).

* SANL believes that its top ten products would be able to outpace the industry in the near to mid-term but its margins are lower relative to most chronic focused domestic player due to the trade business (~35% of the sales).

* Price growth and cost control initiatives remain the key improvement levers for profitability, but declining exports component would help.

Valuations and risks:

We marginally revise our estimates and maintain ADD with a revised target price of Rs8,633/share based on 33xCY22E EPS (earlier: Rs8,594/share). Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company.

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