Growth recovery on the cards for Sanofi

The company’s diabetic portfolio, line-extensions, and new products should help drive earnings

The year 2016 may have not been good for Sanofi India, and March 2017 quarter numbers did not impress either. But, the company’s fortunes are seen changing for the better.

The company follows a JanuaryDecember financial year. While 2016 performance was impacted because of the new drug pricing policy and demonetisation, the March 2017 quarter numbers were weighed down by prolonged effect of the note ban and lower exports revenue. Sanofi said lower export volumes and rupee appreciation versus the euro had an adverse impact on its sales and profitability for the quarter.

These events have weighed on the stock, which at ~4,210 is not much higher than its 52-week lows of ~4,005. However, with analysts confident of a rebound in company performance, the correction offers a good opportunity to buy the stock.

Sanofi is well known for its brands such as Combiflam, Lantus, Avil, etc, besides its vaccines and diabetes portfolio. For its flagship brands, the month of March itself has instigated confidence. Of 17 flagship brands, which contributed 65 per cent to the revenues, seven have grown faster than the market growth of 9.6 per cent in March, says Ranjit Kapadia at Centrum Broking. Kapadia adds the company’s revenue grew 11.5 per cent in March, compared to the industry growth of 9.6 per cent.

What’s interesting is that six other major brands of Sanofi — Lantus, Cardace, Amaryl, Clexane, Frisium and Avil, which are under price control and contribute 30 per cent to revenues — are also growing well. Lantus grew 13 per cent in March and is expected to continue growing fast. Notably, Avil, which is a mature brand, grew 42 per cent.

Although profit margins may be restricted in drugs under price control, faster growth is lending comfort. Line extensions of the flagship brands can further drive growth, say analysts. Anti-diabetic product Amaryl’s line extension (Amaryl-M), for instance, saw about 21 per cent growth in March. Param Desai at Elara Capital says, multinationals such as Sanofi have demonstrated significant resilience, as pickup in volume growth after price reduction has partially or, in some cases, to a large extent offset the price cuts. He adds that new product launches such as anti-diabetic brand, Toujeo can drive growth.

The anti-diabetic portfolio, such as insulin pens, line extensions, new product launches, and well-known brands will lead to superior performance moving forward, says Kapadia.

Meanwhile, the company may have seen some pressure in exports business due to rupee appreciation, but here, too, analysts say that Sanofi will benefit on raw material front given a stronger rupee. Further, growth from exports of active pharmaceutical ingredients (APIs) and formulations to other global locations (nonEurope), including Hong Kong, Singapore, Thailand, Malaysia, Australia, Russia, and the CIS may continue.

Analysts target prices of ~4,900 (Centrum Broking) and ~5,000 (Elara Capital) suggest there is over 16-19 per cent upside.