The Hindu Business Line : Aventis Pharma: Hold/Buy on declines

INVESTORS can retain their holdings in Aventis Pharma. The stock has run up by over 50 per cent since Business Line made a buy recommendation when the scrip was trading at Rs 335 (Business Line, May 25). However, with the market staging a sharp rally over the past few months, the possibility of a correction setting in is very real. Should this lead to a decline in Aventis' stock price by about 10 per cent from current levels, shareholders could consider accumulating the stock. The stock trades at about 15 times its trailing four-quarter earnings per share.

Strategic brands

What has done the star turn for Aventis is its focus on containing material costs as well as a focus on its strategic brands to drive growth.

Key brands such as Cardace (40 per cent growth on a quarter-to-quarter basis) , Clexane (17 per cent), Amaryl (23 per cent) and Targocid (29 per cent) continued to post impressive growth; Aventis derives close to 30 per cent of its revenues from this product set.

These brands address lifestyle diseases and are also outside the ambit of price control.

Coupled with launches from the parent's pipeline, they will continue to drive growth.

Product launches

Aventis has also benefited from the strong support it receives from its parent for product launches. For instance, the launch of Lantus, a once-a-day basal insulin.

Though priced at a significant premium to any comparable offering in the market, the brand is expected to be the single largest contributor to topline in a few years.

Another launch on the anvil is that of Actonel, for the treatment of osteoporosis.

These new launches, in spite of India not yet having made the transition to a product patent regime, are reflective of Aventis' inclination to tap the growing opportunities that India offers.

Though they might not yield returns immediately, they could turn out to the engines of growth in the years to come.

These launches carry with them the expenditure involved in promoting them; this, in turn, might lead to a compression in margins in the near term. However, these are investments that would pay off in the longer term.

Clarity is also yet to emerge on the revised list of drugs to be under price control. With 38 per cent of domestic sales coming from brands under price control (as of December 2002), Aventis should be a beneficiary when the list is recast.

If a few of its key brands move out of price control, it could have the potential to bring about a re-rating in the stock.

Article E-Mail :: Comment :: Syndication

Stories in this Section
SC verdict on EPS — A blessing for employees

The challenge of regular income generation

Paper and paperboards — A better script in the making

Global paper trail

Gaining by binding

`Cost management will remain a focus area'

Value in the reams

Indirect acquisitions — Scope for better compliance?

It's all in their interest

Profit-booking tones down FII effect