Target: ₹9,170

CMP: ₹8,832.45

Sanofi’s Q4CY23 results were below our expectation. Adjusting for price cuts in Lantus, its domestic business grew at 10.6 per cent, while exports grew at a swift pace of 12% YoY. Consumer brands had a decent quarter driven by market share gains in Allegra and Dulcoflex. Gross margins expansion of 144bps was mainly because of Soframycin divestment, lower raw material cost and favorable forex rate.

The company is set to launch diabetes brands, namely Soliqua (Q1CY24), Insutage and Cetapin S in CY24 and Allegra M (consumer brand) in CY25. It is also planning to source Insutage and Cetapin S locally to boost margins. Demerger of the consumer business (28% of India sales) is on track to happen in Q2CY24 and it has on-boarded a management team and independent directors for this business.

We cut our CY24E EPS by 2% to factor in weak results. Maintain Hold , but raise target price to ₹9,170 (earlier ₹8,000), valuing consumer/residual business at 32x/28x CY25E earnings.

Key upside risks: New product launches; and price increases. Key downside risks: Addition of key drugs in NLEM; and presence of unlisted promoter company.