Near-term hiccups to have limited impact on Abbott India's growth: Experts

The company’s top ten brands posted an average annual revenue growth of 18 per cent over the FY15-20 period
The Abbott India stock is down about 7 per cent from its highs this week on lower than expected March quarter results and muted near-term outlook. The company is likely to report a soft June quarter given the Covid-19 outbreak which has impacted raw material availability, supply chain as well as demand. 

The demand worries are visible in the sales numbers for April and May with the company reporting a 8 per cent decline each year on year. However, the company outperformed the market which fell 9-11 per cent over the last two month. The decision by the Indian drug pricing regulator to reduce the maximum retail prices of 40 formulations is also expected to impact the company. 

Despite the muted result and near term worries, the multinational drug major, India’s second largest by market share is expected to post strong growth led by power brands and new launches. The company’s top ten brands posted an average annual revenue growth of 18 per cent over the FY15-20 period. The share of the brands as a proportion of revenues has increased from 37 per cent in FY15 to 47 per cent in FY20.

Analysts at CLSA while indicating that lockdown-led disruption will impact growth expect new launches and volume growth to drive sales of the company. In addition to new launches and extensions introduced by the company, the access to innovative molecules from the global parent is also expected to drive growth.

Despite the near-term hiccups, analysts at ICICI Direct believe that Abbott will continue to generate investor interest with robust and sustainable business model backed by stable growth, debt free balance sheet and favourable market dynamics with doctor prescription stickiness. They expect the company to maintain its growth trajectory due to power brands and consistency of new launches. The company launched over 100 brands in the last ten years. 

While these are positives, the stock which has gained 91 per cent over the last year trades at an expensive 38 times its FY22 earnings estimates. Use sharp dips to accumulate the stock.

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