Sanofi-Aventis Pakistan Limited

Sanofi-Aventis Pakistan Limited (PSX: SAPL) was established as Hoechst Pakistan Limited in 1967. Over a span of several years with mergers and acquisitions, today the company stands as Sanofi-Aventis Pakistan Limited. Sanofi is a subsidiary of Sanofi Foreign Participations B.V. (the parent company). Sanofi S.A. France is the ultimate parent company.

Shareholding pattern

As at December 31, 2021, over 73 percent shares are owned by the associated companies, undertakings and related parties. Within this category, Sanofi Foreign Participations B.V. owns majority of the shares. Close to 14 percent shares are held by the directors, CEO, their spouses and minor children, within whichMr. Arshad Ali Gohar, a non-executive director is a major shareholder. The general public holds over 4 percent shares while the remaining roughly 9 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline with the exception of CY20 when it contracted by 2.7 percent. Operating and net margins have inclined slightly after CY19, while gross margin has remained relatively stable after CY19.

Revenue in CY18 grew by over 4 percent to reach almost Rs 13 billion in value terms. Around 80 percent of the company’s total sales was made up by the pharmaceutical business. The latter saw a 7.7 percent increase in its sales. However, the overall revenue growth that stood at 4 percent was subdued by the vaccine business. This was due to decline in “public (government tender) business”. In addition, cost of production inclined to consume almost 70 percent of revenue due to currency devaluation. The latter resulted in an increase in the cost of imports. Thus, gross margin reduced to 30.4 percent, from last year’s 35.6 percent. This also trickled to the bottomline that nearly halved to Rs 613 million, while net margin shrunk to 4.7 percent, compared to 8 percent in CY17.

In CY19, revenue grew by nearly 12 percent to reach Rs 14.5 billion. Pharmaceutical business registered an increase of 12.3 percent. A major contributor within this segment was Flagyl® that made up 22 percent of the topline. In addition, the vaccine business also recovered as it posted an increase in its sales revenue by 49 percent. However, this did not translate into higher profitability as cost of production continued to consume a larger portion of revenue, at over 74 percent. This was again attributed to currency devaluation that adversely impacted cost of imports. The pharmaceutical industry is heavily reliant on imports for APIs (Active Pharmaceutical Ingredient). Thus, net margin was recorded at 1 percent, the lowest seen between CY16 to CY21.

Revenue in CY20 was lower by 2.7 percent. The contraction was concentrated in the first two quarters of the year when economic activity was slow, with the end of the second quarter seeing the first outbreak of the Covid-19 virus that was later declared a pandemic. Cost of production was somewhat contained at 73 percent of revenue that allowed gross margin to improve to nearly 27 percent. In addition, distribution expense that on average consumed roughly 16 percent of revenue, also reduced as due to lockdowns, there was lower expenditure on traveling and conveyance. Thus, net margin also improved to 3.5 percent for the period.

In CY21, the company witnessed one of the highest growth rates at 12.6 percent with topline reaching close to an all-time high of Rs 16 billion in value terms. This was attributed to a return to normalcy as lockdowns eased, OPDs opened up and there was greater access to healthcare professional clinics. Increases were seen in antibiotic, diabetes and cardiology portfolios. With cost of production reverting to 74 percent of revenue, gross margin was marginally lower at nearly 26 percent. However, increase in net margin was more pronounced as it was recorded at 5.7 percent due to decrease in operating expenses coupled with a substantial rise in other income. The latter was majorly sourced from insurance claim recovery.

Quarterly results and future outlook

Revenue in the first quarter of CY22 was higher by 22.5 percent year on year. This was largely attributed to a growth in volumes. Particularly this growth was seen in Flagyl®, Clexane® and No-Spa® that registered increases of 33 percent, 44 percent and 61 percent, respectively. While the higher revenue reflected in a higher gross margin that was recorded at 29 percent, compared to 24.7 percent in the same period last year, net margin however, was lower year on year at 4.9 percent versus 6.9 percent in 1QCY21. This was due to a rise in distribution and other expenses as a share in revenue. The rise in distribution expense was associated with the increase in traveling and promotional expenses that had reduced during Covid-19.

Internally, the business has a positive sentiment regarding its products growth, mix and performance. However, external factors such as political and economic stability can prove to be an impediment to growth as the sector relies on imported raw materials. There is also the concern regarding Ukraine-Russia war that can cause interruptions in international flows.