One of the reasons for the pressure in gross margins is due to the sharp rise in exports. The share of exports to revenues has risen from 26 per cent last year to 30 per cent this year, on the back of a 25-per cent year-on-year growth.
Given the higher cost of raw materials associated with exports, the rise in this segment has weighed on gross margins. The company has guided for maintaining its export volume for the current year, while on the domestic front, it expects to grow in line with the Indian pharmaceutical market. Analysts expect a growth of 9-10 per cent for both the segments.
The Street will keep an eye out for the trend in exports, as Sanofi is one of the few multinational companies
to have a significant share of revenues coming from the export market. While the company has a five-year contract for the supply of products, there is a risk of revenues from this segment coming under pressure after the contract period. Given this, the company has indicated it will review its manufacturing strategy.
In addition to the diabetes segment, which is its key growth driver and has done much better than the overall domestic growth, how the segment growth pans out will be crucial. Any price cuts could dampen sentiment. While the stock continues to be attractively priced, investors should not rush into an investment, given the near-term headwinds.