26 July 2012
2QCY12 Results Update | Sector: Healthcare
Sanofi India
BSE SENSEX
S&P CNX
16,846
Bloomberg
Equity Shares (m)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,110
SANL IN
23.0
3/-3/15
50.7
0.9
CMP: INR2,200
TP: INR1,848
Neutral
52-Week Range (INR) 2,430/1,980
Sanofi India's (SANL) 2QCY12 operational performance was in line with our expectations. Key highlights:
Net sales grew 23.5% YoY to INR3.74b v/s our estimate of INR3.7b. We believe topline growth has been led by
strong growth in domestic revenue on consolidation of Universal Medicare acquisition. Exports are also likely
to have grown during the quarter.
EBITDA grew 22% YoY to INR522m v/s our estimate of INR537m. EBITDA margin contracted 10bp to 14% v/s our
estimate of 14.5%.
Adjusted PAT declined 18.5% YoY to INR405m and was lower than our estimate of INR442m due to higher
amortization cost relating to the brands and technical knowhow acquired from Universal Medicare in 2011.
SANL has, in the past, indicated that for the domestic business, the rural and OTC segments will be the key
growth drivers, and that it is likely to incur extra expenditure to establish its presence in these segments. This
is likely to pressurize short-term profitability.
We believe SANL will be one of the key beneficiaries of the patent regime in the long-term. The parent has a
strong R&D pipeline with a total of 61 products undergoing clinical trials, of which 18 are in Phase-III or pending
approvals. Some of these are likely to be launched in India. However, SANL's profitability has declined significantly
in the last five years, with EBITDA margin declining from 25% in CY06 to 14.3% in CY11, mainly impacted by
discontinuation of Rabipur sales in the domestic market, lower export growth and higher staff & promotional
expenses. RoE has declined from 28.6% to 17.3% during the period. The stock trades at 29.9x CY12E and 23.8x
CY13E EPS. We believe that the stock performance will remain muted in the short term until clarity emerges on
future growth drivers. Maintain
Neutral.
Nimish Desai
(NimishDesai@MotilalOswal.com); +91 22 3982 5406
Amit Shah
(Amit.Shah@MotilalOswal.com); + 91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Sanofi India
Revenue growth is likely to have led by domestic business
SANL's 2QCY12 operational performance was in line with our estimates with 23.5%
YoY growth in net sales to INR3.74b (v/s est INR3.7b) and 22% YoY growth in EBITDA to
INR522m (v/s est INR537m). EBITDA margins contracted 10bp to 14% (v/s est 14.5%).
Adj PAT declined 18.5% YoY to INR405m and was lower than our estimate of INR442m
The company has stopped giving revenue break-up between domestic formulation
and export revenues. We believe topline growth is led by strong growth in domestic
formulation revenues on the back of consolidation of Universal Medicare acquisition.
Export revenues have likely grown this quarter.
Revenue trend
Source: Company, MOSL
EBITDA was in-line with estimates
EBITDA grew 22% YoY to INR522m (v/s est INR537m). EBITDA margins contracted 10bp
to 14% (v/s est 14.5%). Adj PAT declined 18.5% YoY to INR405m and was lower than our
estimate of INR442m, due to higher amortization cost related to the brands and
technical know-how acquired from Universal Medicare in 2011.
EBITDA and margin trend
Source: Company, MOSL
26 July 2012
2

Sanofi India
The company has, in the past, indicated that for the domestic business, rural and OTC
segment will be key growth drivers in the future, and that the company is likely to
incur some extra expenditure for establishing its presence in these segments. This is
likely to pressurize short-term profitability.
Domestic formulations - new product introductions hold the key
In the past few quarters, SANL's domestic formulation revenue growth has lagged the
average industry growth. Taking a longer term view, we believe SANL is well placed to
benefit from the introduction of product patents, given its strengths in marketing, a
supportive parent and a healthy product pipeline (of NCEs). SANL's history of launching
patented products in India, a well mapped portfolio vis-à-vis the parent, and ability
to build them into big brands make it one of the potential beneficiaries of the product
patent regime in India. Further, the company is planning to strengthen its portfolio in
diabetes segment. The parent (Sanofi-Aventis) currently has 61 projects in research
and development, including about 36 in late stage (Phase II & III) development and
registration. About 20% of the product development pipeline consists of vaccines.
The table below gives details on the parent's R&D pipeline.
SANL - Parent's NCE Pipeline
Therapeutic area
Phase I
Metabolic Disorders
Oncology
Genetic Diseases
Thrombosis
Central Nervous System
Internal Medicine
Ophthalmology
Aging
Vaccines
Total
2
6
1
1
2
3
3
3
4
25
Phase II
1
4
0
0
0
5
2
3
3
18
No of projects
Phase III
0
3
1
1
1
1
0
0
5
12
Registration
Total
2
5
2
15
0
2
0
2
1
4
0
9
0
5
0
6
1
13
6
61
Source: Company, MOSL
Rural initiatives and entry into OTC segment- long term positive but may
pressurize profitability in short-term
AVEN is one of the few MNCs which is focusing on rural India. Given the increasing
disposable income, various government initiatives to improve rural healthcare
infrastructure, and low competition, AVEN may benefit from its early entry into this
segment. Management feels that it has made strong progress with project Prayas and
will continue to invest resources on the project. Prayas is present in 14 states of India.
The project has engaged more than 10,000 doctors and conducted over 2,000
workshops. However, we believe that this will not contribute significantly to revenues
in the short-to-medium term. Rather it is a long-term positive. In fact, in the short-
term, this initiative is likely to pressurize AVEN's profitability given the investments.
required in establishing a presence in this segment as well as the relatively lower
profitability of this market. Rural division generated revenues of INR185mn in CY10.
The management expects the rural division to break even in the next 3 years. On the
back of the success in project 'Prayas', Aventis has launched other initiatives like 'I am
a Champ', 'Saath 7' and 'Together for More'. Further, company's entry into OTC segment
is also likely to keep margins under pressure as it requires higher advertising spend.
26 July 2012
3

Sanofi India
Cutting earnings estimates by 5%
Based on 2QCY12 results and taking into account the full impact of amortization of
brands acquired from Universal Medicare, we are downgrading our EPS estimates for
CY12 and CY13 by 5.2% each to INR73.5 (down 11.4% YoY) and INR92.4 (up 25.7%).
Revised Forecast (INR m)
Rev
14,864
1,693
73.5
CY12
Old
14,774
1,786
77.6
Chg (%)
0.6
-5.2
-5.2
Rev
17,144
2,128
92.4
CY13
Old
Chg (%)
17,038
0.6
2,245
-5.2
97.5
-5.2
Source: CMOSL
Net Sales
Net Profit
EPS (INR)
Valuation and view
We believe SANL will be one of the key beneficiaries of the patent regime in the
long-term. The parent has a strong R&D pipeline with a total of 61 products undergoing
clinical trials, of which 18 are in Phase-III or pending approvals, some of which are
likely to be launched in India. However, SANL's profitability has declined significantly
in last 5 years with EBITDA margins declining from 25% for CY06 to 14.3% for CY11,
mainly impacted by discontinuation of Rabipur sales in the domestic market, lower
export growth and higher staff & promotional expenses. RoE has declined from 28.6%
to 17.3% in the same period. Based on our revised estimates, the stock trades at 29.9x
CY12E and 23.8x CY13E EPS. We believe the stock performance will remain muted in
the short term until clarity emerges on future growth drivers. Maintain
Neutral.
26 July 2012
4

Sanofi India
Sanofi India (SANL): an investment profile
Company description
SANL (60% subsidiary of Sanofi Aventis, France) is the
fifth largest MNC and among the top 15 formulations
players in India. The company has built a very strong
franchise in chronic therapy areas like anti-diabetes,
oncology and CVS, in the process realigning its domestic
portfolio with that of its parent.
Recent developments
In November 2011, the company acquired Universal
Medicare Pvt. Ltd in India for the total consideration
of INR5.6b
Valuation and view
SANL will be one of the key beneficiaries of the
patent regime in the long-term. In the long-
term, focus on growing strategic brands and strong
support from the parent will augur well for the
company. We believe that it is very well positioned
to take advantage of the patent regime in the long-
term.
The stock is currently valued at 29.9x CY12E and 23.8x
CY13E earnings. We maintain Neutral.
Key investment arguments
SANL is well placed to benefit from the introduction
of product patents, given its strengths in marketing,
a supportive parent and a healthy NCE product
pipeline of parent company
SANL's history of launching patented products in
India, a well mapped portfolio vis-à-vis the parent
and ability to build them into big brands make it one
of the potential beneficiaries of the product patent
regime in India
Sector view
The domestic market is expected to witness 14-15%
growth, with gradual increase in the low penetration
levels - companies with strong brands and marketing
muscle to benefit.
IPR regime unlikely to lead to any major change in
the near term; MNCs and large Indian players to gain
over the longer term.
Among MNCs, we are bullish on companies whose
domestic portfolio is well aligned with its parent
and where risk of conflict with 100% subsidiaries is
limited.
Key investment risks
Biggest risk to SANL could be the implementation of
the new pharmaceutical policy in the current form.
The new policy proposes to significantly increase
the span of control by bringing in total 348 drugs
under price control.
Possible pre-grant and post-grant patent challenges
by domestic generic companies could hamper the
plans and prospects of launch of patented product.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
CY12E
CY13E
CY12E
CY13E
CY12E
CY13E
CY12E
CY13E
Aventis
29.9
23.8
4.2
3.7
3.2
2.7
22.3
17.8
GSK
26.7
22.8
8.9
7.9
6.2
5.3
19.5
16.1
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
73.5
92.4
Consensus
Forecast
99.7
100.5
Variation
(%)
-26.3
-8.1
CY12
CY13
Target Price and Recommendation
Current
Price (INR)
2,200
Target
Price (INR)
1,848
Upside
(%)
-16
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
26 July 2012
60.4
15.8
12.4
11.5
Dec-11
60.4
17.8
10.5
11.3
Mar-11
60.4
18.3
10.0
11.3
5

Sanofi India
Financials and Valuation
26 July 2012
6

Sanofi India
N O T E S
26 July 2012
7

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