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Weak Q4; power brands growth, future divestitures to be keenly watched…

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

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

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

Q4CY22 Results: Sanofi India reported weak numbers in-line with our expectations

* Sanofi’s Q4CY22 revenues declined by 2.9% QoQ to |672 crore

* EBITDA de-grew 8.2% QoQ to | 167 crore while EBITDA margins declined 145 bps QoQ to 24.8%

* Adjusted Profit for the quarter decreased 14.5% QoQ to | 112 crore

What should investors do? Sanofi’s share price has grown at -7.1% CAGR over the past 3 years.

* Maintain HOLD as we wait for visible growth triggers in power brands portfolio especially in the anti-diabetic and cardiovascular therapies

Target Price and Valuation: Valued at | 6270 i.e. 23x P/E on CY24E EPS of | 272.7

Key triggers for future price performance:

* Focus on high margin portfolio through divestiture of tail brands

* Strong balance sheet, good dividend payout track record and comfort on corporate governance

* Performance of flagship Lantus (~20% of the sales), especially on the volumes front since its inclusion in the NLEM list

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

Alternate Stock Idea: Besides Sanofi, in our MNC coverage we like P&G Health.

Procter & Gamble Health is a leading pharma cum OTC company with key focus on vitamins, minerals, supplement (VMS). Its recent earnings reflect sustained efforts to regain momentum via improved mix and productivity initiatives ? BUY with a target price of | 5315

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