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Centrum Broking
Sanofi India (Reduce)
CMP: ₹6,067
Target: ₹6,000
Sanofi India delivered results below our estimates in Q2 CY19. Sanofi reported Revenue growth almost in-line with industry growth of 9 per cent. Revenue for the quarter grew by 9.4 per cent y-o-y at ₹748 crore (Estimate: ₹752 crore).
SIL derives about 30 per cent of its revenues from exports which expected to grow in-line with Industry. In domestic market we expect SIL to report good growth from its strong existing brands, launch of new products and strong portfolio of anti-diabetes products. In October 2018, Advent International acquired Sanofi’s European generic business. Sanofi Group has signed a 5-year supply agreement with Advent for continuing to source products from India. We have reduced our earnings by 6.5 per cent for CY19E and 12 per cent by CY20E adjusting for higher material cost.
We expect domestic-oriented pharma companies to attract a higher valuation compared to those with global operations given pricing pressure in the US and currency fluctuations in EMs.
We have valued SIL at 27x CY20E EPS of ₹ 219, with a ‘Reduce’ rating and target price of ₹6,000.
Key risks to our call include regulatory issues, any additions from key brands to NLEM list and slowdown of the domestic pharma market.
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