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7/31/2019 Abbott 2qcy2012ru
1/13
Please refer to important disclosures at the end of this report 1
EBITDA 44 26 70.6 29 51.6
EBITDA margin (%) 10.8 7.3 353bp 7.8 300bp
Source: Company, Angel Research
For 2QCY2012, Abbott India Ltd (AIL) reported a top-line of `412cr, in line with
our estimate of `410cr and 14.9% higher yoy from `358cr in 2QCY2011. The
EBITDA margin expanded by 353bp yoy to 10.8% during 2QCY2012 on accountof decline in overall expenses. Consequently, the net profit surged by 72.6% yoy
to `30cr in 2QCY2012 from `17cr in 2QCY2011.
AILs merger with Solvay Pharma (SPIL) in CY2011, has provided AIL a
widened product portfolio, thus giving it access to untapped therapeutic segments.
In addition, the companys continuing focus on advertisement and employee cost,
which witnessed a CAGR of 45.7% and 34.7%, respectively, over CY2006-11, is
expected to aid in revenue growth going forward.
We expect AIL to post a 12.6% CAGR in revenue to
`1,833cr over CY2011-13E. The EBITDA margin is expected to expand by 183bp
from 10.0% in CY2011 to 11.8% in CY2013E resulting from reduced expenses on
account of the complementary nature of businesses of the two entities getting
merged (AIL and SPIL). Hence, we expect the companys net profit to witness a
12.5% CAGR over CY2011-13E to `152cr. At the current market price, the stock
is trading at a PE of 21.4x its CY2013E earnings and EV/sales of 1.5x for
CY2013E. Considering the high valuation,
Key financials
% chg 30.1 46.0 10.8 14.4
% chg (21.4) 97.2 (3.5) 31.2
EBITDA margin (%) 7.0 10.0 10.4 11.8
P/E (x) 53.5 27.1 28.1 21.4
P/BV (x) 10.7 6.0 5.3 4.5
RoE (%) 21.2 28.3 20.0 22.7
RoIC (%) 54.4 63.7 52.1 69.5EV/Sales (x) 3.1 2.1 1.8 1.5
EV/EBITDA (x) 44.3 20.9 17.4 13.0
Source: Company, Angel Research
CMP `1,536
Target Price -
Investment Period 12 Months
Stock Info
Sector
Net Debt (261)
Bloomberg Code
Shareholding Pattern (%)
Promoters 75.0
MF / Banks / Indian Fls 5.8
FII / NRIs / OCBs 2.0
Indian Public / Others 17.2
Abs. (%) 3m 1yr 3yr
Sensex 6.9 2.5 17.0
ABBOTINDIA 1.3 6.1 204.9
Beta 0.4
Pharmaceuticals
Market Cap (Rs cr) 3,264
52 Week High / Low 1,375 / 1,807
Avg. Daily Volume 1,448
Face Value (Rs) 10
BSE Sensex 17,558
Nifty 5,320
Reuters Code ABOT.BO
BOOT IN
+91- 22- 3935 7800 Ext: 6849
Performance Highlights
2QCY2012 Result Update | Pharma
August 10, 2012
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Abbott India | 2QCY2012 Result Update
August 10, 2012 2
Exhibit 1:2QCY2012 performance
Net raw material 237 206 14.7 222 6.6 474 361 31.2(% of Sales) 57.5 57.6 59.1 60.1 60.1
Staff Costs 53 44 21.1 49 7.4 103 73 41.2
(% of Sales) 12.9 12.2 13.1 13.0 12.1
Other Expenses 77 82 (5.7) 75 3.3 152 132 15.3
(% of Sales) 18.8 22.9 19.9 19.3 22.0
EBITDA margin (%) 10.8 7.3 353bp 7.8 300bp 7.5 5.8 173bp
Interest 0 0 0 0 0
Depreciation 4 3 23.1 6 (33.3) 10 6 71.4
Other Income 5.7 5.3 7.0 5.3 7.2 11 8 30.9
(% of Sales) 11.2 7.9 7.6 7.7 6.2
Tax 17 11 50.7 12 38.7 29 14 100.1
(% of PBT) 36.1 39.3 41.9 47.6 38.4
PATM - - (10) (10)
Equity capital (cr)
7.2 4.8 4.4 4.0 3.8
Source: Company, Angel Research
Exhibit 2:Actual vs. estimates (2QCY2012)Total Income 412 410 0.4
EBIDTA 44 39 13.1
EBIDTA margin (%) 10.8 9.6 122bp
Adjusted PAT 30 32 (7.3)
Source: Company, Angel Research
Operating costs decline post amalgamation- EBITDA margin expands
For 2QCY2012, AIL reported a revenue at `412cr, in line with our estimate of
`410cr and 14.9% higher on a yoy basis. The operating cost witnessed a decline
during the quarter which led to an expansion in the EBITDA margin by 353bp yoy
to 10.8% from 7.3% in 2QCY2011. However, the net profit came in at `30cr in
2QCY2012, 7.3% lower than our estimate of `32cr on account of lower than
expected other income.
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Abbott India | 2QCY2012 Result Update
August 10, 2012 3
Investment rationale
Synergies with SPIL to improve the business model
Product portfolio to expand, giving access to newer segments
AIL is present across different segments such as pain management,
gastroenterology, metabolic, urology, thyroid, diabetes, neurology, anesthesiology
and neonatology. The company has some of the leading pharmaceutical brands
such as Digene, Cremaffin, Brufen, Thyronorm, Zolfresh and Pediasure, which are
the main revenue drivers. Post the merger with SPIL, AILs product portfolio has
widened, providing it leadership position in different therapeutic segments
AIL had a gastroenterology portfolio comprising Digene, Cremaffin and Ganaton.
Digene is the market leader in the antacid segment with a 35% market share,
while Cremaffin is a leader in the laxative segment. With the addition of Duphalac,
Creon and Udiliv through the merger of SPIL, the company gained leadership in
the gastroenterology segment in India.
In addition, the company got access to the womens health segment post-merger
with products such as Duphaston, Duvadilan, Pro-9, Life and B-crip. Duphaston was
a major contributor (23%) to the total revenue of SPIL in CY2010. Moreover, AILs
CNS portfolio strengthened with the addition of SPILs Vertin, a market leader in
the vertigo segment in India. Thus, synergy between the two companies is expected
to help AILs growth in the long term.
Contribution margin to witness an uptrend
The companys net raw-material cost as a percent of sales has started witnessing a
downtrend to ~58% levels since 2QCY2011. Earlier it was at more than 60%
levels. We expect the raw material cost (as a percentage of sales) to stabilize in the
higher 50s on account of a change in the business mix for the combined entity.
This is expected to result in expansion of contribution margin by 183bp from
10.0% in CY2011 to 11.8% in CY2013E.
Exhibit 3:Raw material cost declining post merger
Source: Company, Angel Research (post 2QCY2011 numbers include
consolidated results for AIL and SPIL)
Exhibit 4:Raw material cost shrink on new product mix
Source: Company, Angel Research (*CY2011-13E are consolidated results
for AIL and SPIL)
147
157
168
155
206
229
227
222
237
64.3
61.760.4
63.8
57.6
55.7
58.7 59.1
57.5
51
54
57
60
63
66
0
50
100
150
200
250
2QCY10
3QCY10
4QCY10
1QCY11
2QCY11
3QCY11
4QCY11
1QCY12
2QCY12
(%)
(`cr)
Net raw material (LHS) % of ne t sales (RHS)
455
504
647
848
913
1,0
34
68.3
66.365.4
58.7
57.056.4
50
54
58
62
66
70
0
200
400
600
800
1,000
1,200
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
Net raw material cost (LHS) % of net sales (RHS)
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Abbott India | 2QCY2012 Result Update
August 10, 2012 4
Strong balance sheet
AIL is a debt-free company with cash reserves of `189cr as of December 2010,
and RoE and RoIC of 21.2% and 65.6% respectively for CY2010. Post
amalgamation, cash on AIL books stands at `259cr for CY2011 (SPIL had cash of
`51cr for CY2010). We expect the cash to increase to `447cr by CY2013E end,
while RoE and RoIC are expected at 22.7% and 69.5% respectively for CY2013E.
Due to high cash reserves in the books, we believe there is potential for the
company to get delisted.
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Abbott India | 2QCY2012 Result Update
August 10, 2012 5
Financials
Exhibit 5:Change in estimates
EBITDA margin (%) 9.7 11.9 10.4 11.8 78bp (16)bp
Source: Angel Research
Advertisement & employee spend to drive revenue
Advertisement spend (as a percentage of sales) increased from 2.6% in CY2006 to
6.1% in CY2011, while employee expenses (as a percentage of net sales)
increased from 7.4% in CY2006 to 11.6% in CY2011. We expect the company tomaintain its focus on these expenses which form a critical part of the
pharmaceutical industry, thus facilitating medium to long term revenue growth.
Hence, we expect the revenue to post a 12.6% CAGR over CY2011-13E.
Exhibit 4: Continued focus on advertisement and employee spend to drive revenue growth
Source: Company, Angel Research
Exhibit 6:Revenue growth to normalize on a higher base of CY2011
Source: Company, Angel Research (*CY2011-13E are consolidated results for AIL and SPIL)
13.44 14 20 24 49 88
-
-
2.6
2.4
3.1 3.1
5.1
6.1
0
1
2
3
4
5
6
7
0
20
40
60
80
100
CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
(%)
(`cr)
Advertisement cost (LHS) % of net sales (RHS)
SPIL
38 47 63 78 111 168
7.48.0
9.5
10.3
10.9
11.6
6
7
8
9
10
11
12
0
20
40
6080
100
120
140
160
180
CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
(%)
(`cr)
Employee expense (LHS) % of ne t sales (RHS)
SPIL
666
761
990
1,4
46
1,6
02
1,8
33
12.0 14.3
30.1
46.0
10.8 14.4
0
10
20
30
40
50
0
400
800
1,200
1,600
2,000
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
Revenue (LHS) Revenue growth (RHS)
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Abbott India | 2QCY2012 Result Update
August 10, 2012 6
Blended EBITDA margin to witness expansion
The average EBITDA margin for SPIL was at ~24% for the past five years, while
that of AIL has been at ~11% for the same period. The consolidation of the two
businesses is expected to result in operational efficiencies thus leading to a gradual
expansion in the EBITDA margin. We expect the EBITDA margin to expand by
183bp over CY2011-13E to 11.8% in CY2013E.
Exhibit 5: Higher blended EBITDA margin vs AILs margins
Source: Company, Angel Research (*CY2011E-13E are consolidated results for AIL and SPIL)
Improved business model to augment profit growth
The amalgamation of AIL and SPIL is expected to lead to economies of scale owing
to the complementary nature of drugs, resulting in an expansion of EBITDA
margin, which consequently will result in better profit. Hence, we expect the
companys net profit to post a CAGR of 12.5% over CY2011-13E, from `120cr in
CY2011 to `152cr in CY2013E.
Exhibit 7: Profit margin to recover in CY2013E
Source: Company, Angel Research (*CY2011E-13E are consolidated results for AIL and SPIL)
76 97 69 144 167 216
14.1 15.7
11.110.0 10.4
11.8
4
8
12
16
20
24
28
0
40
80
120
160
200
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`
cr)
EBITDA (LHS) Blended margin AIL's margin SPILs margin
61 78 61 120 116 152
9.1
10.2
6.2
8.3
7.3
8.3
5
6
7
8
9
10
11
0
30
60
90
120
150
180
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
PAT (LHS) PAT margin (RHS)
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Abbott India | 2QCY2012 Result Update
August 10, 2012 7
Exhibit 7:Relative valuation
Glaxo 2,396 27.3 632 74.6 30.3 28.2 8.8 6.6 24.2
Aventis 1,264 15.1 172 74.5 14.5 29.6 4.6 3.8 25.4
Pfizer 1,095 18.0 185 62.0 14.2 20.0 2.8 2.6 14.4
Novartis 861 14.6 141 44.2 18.6 15.4 2.6 2.5 17.2
Wyeth 609 28.1 141 62.1 30.1 14.7 4.0 2.9 10.3
Astrazeneca 485 (2.9) 20 7.9 10.3 205.4 21.5 7.6 (257.9)
Source: Company (all above figures are on a TTM basis)
Outlook and valuation
We have revised our revenue and earnings estimates downwards for CY2012E
and CY2013E, since the new business model post consolidation would take some
time to get streamlined. At current levels, the stock is trading at a PE of 21.4x its
CY2013E earnings and P/BV of 4.5x for CY2013E.
Exhibit 8: One-year forward PE band
Source: Company, Angel Research
Exhibit 9: One-year forward EV/Sales band
Source: Company, Angel Research
0
400
800
1,200
1,600
2,000
Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
(`)
Price 8x 12x 16x 20x
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
EV
(`
cr)
EV 1.6x 1.2x 0.8x 0.4x
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Abbott India | 2QCY2012 Result Update
August 10, 2012 8
Key concerns
Shift of focus to the unlisted subsidiary
Abbott Laboratories, USA, bought the healthcare solution business from PiramalHealthcare Ltd (PHL) for a consideration of US$3.8bn in 2010, which was
transferred to the unlisted subsidiary, Abbott Healthcare Pvt Ltd (AHPL). The
transfer included manufacturing facilities at Baddi, Himachal Pradesh; rights to
approximately 350 brands and trademarks; and ~5,000 employees relating to its
domestic formulations business. Since the unlisted subsidiary is 100% owned with
extended portfolio from Piramals healthcare business, there is a possibility that the
parent company shifts its focus to the unlisted entity. Also, the merger would limit
listed AILs access to untapped therapeutic segments where PHL already exists.
Impact of the new drug pricing policyThe New Pharmaceutical Pricing Policy (NPPP) draft note released by Department
of Pharmaceutical in 2011 is set to replace the Drug Policy of 1994. This new
policy is based on the revised National List of Essential Medicines (NLEM) released
in 2011, which includes 348 drugs instead of 74 drugs previously. Principles of the
policy are based on three basic factors: 1) essentiality of drugs, 2) market-based
pricing (MBP) and 3) control of formulation prices only. AIL currently has ~40% of
its drugs under price control. If this number increases it could hinder the
profitability of the company.
Company Background
AIL is a 50.44% subsidiary of Abbott Capital India Ltd, UK, which is a subsidiary of
Abbott Laboratories, USA. In CY2011, the company merged with Solvay Pharma,
which was acquired by the parent company in CY2010. Post merger, AIL
strengthened its distribution network to 35 distribution points (from 18), and caters
to 4,500 stockists and 1,50,000 retailers. AILs employee count increased from
1,747 in CY2010 to 2,425 in CY2011. The company caters to a wide range of
therapeutic segments like gastroenterology, womens health, CNS, metabolics,
pain management, anesthesia, neonatology, vitamins, etc.
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Abbott India | 2QCY2012 Result Update
August 10, 2012 9
Profit & Loss Statement
767 996 1,464 1,623 1,857
Less: Excise duty 6 6 18 21 23Net Sales 761 990 1,446 1,602 1,833
% chg 14.3 30.1 46.0 10.8 14.4
Net Raw Materials 504 647 848 913 1,034
Power & Fuel costs 5 7 8 10 12
Personnel 62 111 167 203 220
Other expenses 92 155 278 308 352
Total Expenditure 664 920 1,302 1,435 1,617
% chg 28.7 (28.6) 107.3 16.2 29.1
(% of Net Sales) 12.8 7.0 10.0 10.4 11.8
Depreciation 9 11 15 18 20
% chg 28.6 (34.1) 121.5 15.9 31.4
(% of Net Sales) 11.6 5.9 8.9 9.3 10.7
Interest & other charges 0 0 0 - -
Other Income 29 36 51 24 31
(% of sales) 3.8 3.6 3.5 1.5 1.7
% chg 28.4 (34.0) 121.6 15.9 31.4
Tax 40 33 60 57 75
(% of PBT) 34.0 35.3 33.2 33.0 33.0
Extraordinary (Exp)/Inc. (0) (0) - - -
% chg 28.3 (21.4) 97.2 (3.5) 31.2
(% of Net Sales) 10.2 6.2 8.3 7.3 8.3
% chg 28.3 (21.4) 26.9 (3.5) 31.2
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Abbott India | 2QCY2012 Result Update
August 10, 2012 10
Balance Sheet
Equity Share Capital 14 14 21 21 21Reserves& Surplus 258 292 523 595 703
Total Loans - - - - -
Deferred Tax Liability (Net) 2 0 (6) (6) (6)
Other Long Term Liabilities - - - - -
Long Term Provisions - - 11 11 11
Gross Block 107 118 192 211 232
Less: Acc. Depreciation 58 69 112 130 150
Capital Work-in-Progress 0 1 1 1 1
Goodwill - - - - -
Investments - - - - -
Long term Loans & adv - - 31 31 31
Cash 176 189 259 348 447
Loans & Advances 17 20 27 30 34
Inventory 102 129 255 212 206
Debtors 44 65 133 110 126
Other current assets - - 5 5 6
Current liabilities 114 148 241 197 204
Mis. Exp. not written off - - - - -
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Abbott India | 2QCY2012 Result Update
August 10, 2012 11
Cash Flow Statement
Profit before tax 117 94 180 173 227
Depreciation 9 11 15 18 20Change in Working Capital (37) (18) (112) 18 (7)
Other income (29) (36) (51) (24) (31)
Direct taxes paid (40) (33) (60) (57) (75)
Others 17 27 52 - -
(Inc.)/Dec. in Fixed Assets (6) (12) (74) (19) (21)
(Inc.)/Dec. in Investments - - - - -
(Inc.)/Dec. in L.T. Loans & adv - - (31) - -
Deposit having maturity more than 3m - 10 32 - -
Other income 29 36 51 24 31
Others (25) (40) 59 - -
Issue of Equity - - 8 - -
Inc./(Dec.) in loans (1) - - - -
Dividend Paid (Incl. Tax) (27) (27) (42) (44) (44)
Others 5 (0) (8) - -
Cash acquired on amalgamation - - 51 - -
Inc./(Dec.) in Cash 12 13 70 89 99
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Abbott India | 2QCY2012 Result Update
August 10, 2012 12
Key Ratios
P/E (on FDEPS) 42.0 53.5 27.1 28.1 21.4P/CEPS 63.4 52.9 63.7 24.3 19.0
P/BV 12.0 10.7 6.0 5.3 4.5
Dividend yield (%) 1.1 1.1 1.1 1.2 1.2
EV/Sales 4.1 3.1 2.1 1.8 1.5
EV/EBITDA 31.7 44.3 20.9 17.4 13.0
EV / Total Assets 11.3 10.1 5.5 4.7 3.9
EPS (Basic) 56.7 44.6 56.7 54.7 71.7
EPS (fully diluted) 56.8 44.6 56.6 54.7 71.7
Cash EPS 63.4 52.9 63.7 63.1 81.0
DPS 17.0 17.0 17.0 18.0 18.0
Book Value 198.6 223.3 256.1 289.9 340.8
EBIT margin 11.6 5.9 8.9 9.3 10.7
Tax retention ratio 0.7 0.6 0.7 0.7 0.7
Asset turnover (x) 9.7 9.3 7.1 5.9 6.5
ROIC (Post-tax) 74.1 35.2 42.5 36.8 46.9
Cost of Debt (Post Tax) 34.8 - - - -
Leverage (x) (0.7) (0.6) (0.5) (0.5) (0.6)
Operating ROE 172.2 - - - -
ROCE (Pre-tax) 35.4 20.1 30.2 25.5 29.1
Angel ROIC (Pre-tax) 112.2 54.4 63.7 52.1 69.5
ROE 31.5 21.2 28.3 20.0 22.7
Asset Turnover 7.4 8.8 9.3 8.0 8.3
Inventory / Sales (days) 47 43 48 53 42
Receivables (days) 18 20 25 25 25
Payables (days) 66 52 54 50 46
WC (ex-cash) (days) 15 21 31 39 33
Net debt to equity (0.6) (0.6) (0.5) (0.6) (0.6)
Net debt to EBITDA (1.8) (2.7) (1.8) (2.1) (2.1)
Interest Coverage 441.5 1,455.1 4,297.9 - -
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Abbott India | 2QCY2012 Result Update
A t 10 2012 13
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
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Disclosure of Interest Statement Abbott India Ltd.
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors