>SANOFI INDIA: Acquisition of UMPL business

Sustainable growth
Sanofi India (SIL) is a leading MNC pharma company with strong product portfolio in the domestic market. Five of its ten major brands are growing faster than the market and are likely to drive future growth. Three of the company’s major brands contribute 23% of total revenues. In Nov’11, SIL acquired the generic neutraceutical formulation business of Universal

Medicare Private Limited (UMPL) for Rs5.61bn. Thebacquisition would result in a sustainable growth. SIL is unlikely to get majorly impacted by National Pharmaceutical Pricing Policy (NPPP). We initiate coverage on the company with a Buy rating and target price of Rs2,729 based on 24x CY14 earnings.

Strong product portfolio: As per IMS-MAT June’12 data, ten of the company’s brands appear in the list of top 300 products. The top 10 brands contribute ~51% of its revenues. We expect these brands to drive the future growth.

Acquisition of UMPL business: In Nov’11, the company acquired 40 neutraceutical brands of UMPL for Rs5.61bn. These brands had sales of Rs1.1bn in FY11. The acquisition was made at 5.1x of their revenues. With this acquisition, SIL has entered into the OTC segment. We expect these brands to deliver higher growth from the marketing thrust from SIL.

No major threat from NPPP: Currently, four major products of SIL are under price control. Under the NPPP provisions Amaryl M and Clexane would be under price control. However, if the combinations with NLEM drugs are excluded, Combiflam and Amaryl M would be outside the purview of price control.

Debt-free cash rich company: SIL continues to be a debt-free company even after the Rs5.61bn acquisition of UMPL business in Nov’11. The company had cash of Rs2.34bn (Rs102 per share) as on 31st December’11. We expect SIL to continue the debt-free status due to the descent cash flow from operations.
 
Initiate coverage with a Buy rating: We expect SIL to report 18% CAGR in revenues and 19% CAGR in net profit over next 3 years from the strong growth of its brands in niche therapeutic segments and acquisition of UMPL business. At the CMP of Rs2235, the stock trades at 25.3x CY12E EPS of Rs88.3 and 19.7x CY13E EPS of Rs113.7. We initiate coverage on the company with Buy rating and target price of Rs2,729 (based on 24x CY13E EPS of Rs113.7) with a 22.1% upside over next 12 months.