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In-line performance, growth to continue

Abbott India Limited’s (AIL) Q1FY22 performance was in-line with our estimates with revenue growing 14.4% YoY to Rs12.2bn (I-Sec: Rs12.2bn). EBITDA margin improved 300bps QoQ to 21.8% (I-Sec: 20.0%) and adj. PAT grew 8.5% YoY to Rs2.0bn (I-Sec: Rs1.9bn). The growth during the quarter was led by traction in key products. While COVID-19 cases have been declining easing near term pressures, another wave could dent growth.

We remain positive on the company considering its exposure exclusively in domestic formulations, strong balance sheet with deep cash reserves, high return ratios and strong brand equity built over the years, but considering the recent run up in the stock we downgrade to ADD with a revised target price of Rs18,621/share.

* Normalised performance:

Revenue growth of 14.4% YoY was due to traction in key products. Despite surge in cases during the quarter, recovery in growth continued along with the industry. Going ahead, declining COVID-19 cases coupled with vaccination should allow the growth to continue but resurgence of cases may affect growth in the future. Gross cost grew 11.4% YoY but gross margin improved 150bps with higher revenue. S,G&A expenses fell sharply by 21.4% QoQ due to rising COVID-19 cases which lifted EBITDA margins by 300bps to 21.8%.However, we expect these expenses to rise in the coming quarters with declining cases which would restrict EBITDA margin in the range of 21-22%. Adj PAT grew 8.5% YoY.

* Key products performance:

As per AIOCD data the AIL has reported a growth of 41.6% in its key products while Novo portfolio grew 23.1%. Thyronorm, Udiliv, Duphalac, Vertin, Cremaffin Plus and Digene have reported YoY growth of 28.2%, 58.4%, 48.9%, 33.7%, 59.2% and 27.7% respectively for the quarter. Duphaston has reverted to growth trajectory with rise of 24.2% YoY led by price hike announced in the last few weeks. Cremaffin and Claribid reported a YoY growth of 18.3% and 145% respectively. All key products in Novo portfolio have reported strong growth. Mixtard, Novomix, Ryzodeg, Actrapid, Novorapid, Tresiba and Victoza have reported growth of 17.6%, 10.8%, 23.1%, 67.9%, 30.1%, 17.3% and 31.9% YoY respectively.

* Outlook:

We believe that current quarter expenses is subdued due to sharp rise in COVID-19 cases which have declined considerably now. Hence, the expenses are expected to rise in the coming quarters restricting EBITDA margins in the range of ~21-22%. Overall, we expect 9.8% revenue and 16.8% PAT CAGR over FY21-23E. Minimal capex requirement would help generate healthy FCF of Rs19bn over FY22EFY23E.

* Valuations and risks:

We raise our earnings estimates by 0-1% for FY22E-FY23E to reflect lower expenses. Considering the recent run up in the stock price we downgrade to ADD from BUY with a revised target price of Rs18,621 based on 42xFY23E EPS (earlier: Rs18,497). Key downside risks are: addition of key drugs in NLEM, government intervention, and presence of unlisted promoter company.

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