Double whammy: Power brands give Sanofi revenues and an edge over peers

Topics Sanofi India

The Sanofi India stock hit fresh highs on Wednesday, after it posted a better-than-expected December quarter (Q3) performance.

Revenue growth continues to be driven by a large branded portfolio in the high-growth chronic segment. The tilt towards the more-profitable chronic segment, coupled with a leadership position in diabetes therapy, gives it an edge over its peers.

Revenues in Q3 grew 14 per cent year-on-year (YoY). The top five products have contributed about 57 per cent to revenues, and are likely to drive future growth, say analysts. Top brands like Lantus for diabetes, Allegra an anti-allergic, and Combiflam for pain relief reported strong double-digit growth.

Profits at Rs 117.2 crore (up 48 per cent), adjusted for one-offs, impressed as well.

This momentum is expected to continue, with the firm’s brands and line extension gaining regular traction. Analysts believe Lantus can become a much bigger brand than what it is, as power brands prevalent in under-penetrated therapies, such as diabetes, have the potential to generate a multiplier effect.

However, the share of exports — which continues to be the growth driver for Sanofi — may reduce, given the company is divesting its Ankleshwar facility to Czech-headquartered Zentiva for Rs 262 crore. The agreement with Zentiva is valid till 2023.

It may also lose revenues, equivalent to Rs 470 crore a year, over the next few quarters. However, the divestment of the facility is in line with the company’s rationale to address excess and unutilised capacity. It will concentrate on core brands, which is a positive.

Given the focus on its domestic branded business, the stock will command higher valuations, say analysts. Further, cash flows are likely to improve as there are no large investments in building facilities.  

What could boost investor sentiment is the one-time special dividend of Rs 243 from the total dividend of Rs 349 a share declared by the company. While analysts at Centrum have given a target price of Rs 7,680, Elara Capital has pegged its target price is at Rs 7,300, which leaves little upside for the stock trading at Rs 7,114-levels.

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