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Q2 muted on high base of Covid and divestments…

About the stock: Sanofi offers drugs in therapies like diabetes (insulins & orals), cardiology, pain, allergy and epilepsy.

* Around 70% of sales stem from top 7 brands. Lantus, Allegra & Combiflam are in Top 100 pharmaceutical brands in India

* Sanofi enjoys strong brand recall in anti-diabetic therapy in India

Q2CY22 Results: Sanofi India reported muted numbers this quarter amid divested business and Covid sales in base year

* Revenues were down 11.4% YoY to | 699.3 crore

* EBITDA was at | 161.1 crore, down 34.8% YoY with margins at 23%

* Consequent PAT was at | 120.4 crore (down 32.5% YoY)

What should investors do? Sanofi’s share price has remained flat over the past three years (from ~| 6182 in July 2019 to ~| 6413 in July 2022).

* We maintain HOLD rating on the stock due to lack of visible growth triggers and ramp up in ex-power brand portfolio.

Target Price and Valuation: Valued at |6885 i.e. 26x P/E on FY24E EPS on | 264.8

Key triggers for future price performance:

* Focus on high margin portfolio through divesture of tail brands

* Strong balance sheet, good dividend pay-out track record and comfort on corporate governance

* Consistent performer in Anti-Diabetic and Cardiac along with increasing contribution from Respiratory, Analgesics and Gastro-Intestinal therapies

* Price led growth in H2CY22 on back of 10.8% price hike in NLEM portfolio

* Access to innovative molecules from parent like anti-diabetic drug Toujeo

Alternate Stock Idea: Apart from Sanofi, among MNC coverage we like Abbott.

* Abbott India is one of the fastest growing listed MNC pharma companies in women’s health, GI, metabolic, pain, CNS among others. We continue to believe in Abbott’s strong growth track in power brands and capability in new launches on a fairly consistent basis.

* BUY with target price of | 20560

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