Target: ₹9,084

CMP: ₹7.730.20

Sanofi India has reported a strong Q2 quarter, which was far above internal expectations. Revenue grew about 3.3 per cent y-o-y, while PAT grew around 16.3 per cent y-o-y to ₹152 crore. The company’s focus is on its core areas of diabetes, cardiology, gastro, vaccines, and CNS, which should continue to propel strong growth ahead, besides undergoing cost-rationalisation measures. As a result, we expect about 8 per cent PAT CAGR over the next two years.

As Lantus, its flagship product, price has declined by about 25 per cent on a weighted average basis, post inclusion in the revised National List of Essential Medicines (NLEM) list. Subsequently, it is expected that overall revenue of Sanofi will grow at a slower pace of around 5 per cent from CY2022-CY2024E. We also believe growth in the base business and expected resultant increase in volumes for Lantus should more than offset the impact due to price fall in Lantus.

Moreover, the company has declared a de-merger of its consumer business into a separate entity by the middle of CY2024, which will unlock value for existing shareholders of Sanofi.

Key risks: Inclusion of products in the NLEM could hurt earnings performance; and slower growth in sales than Indian Pharma Market.