Sanofi-Aventis Pakistan

Established in 1967 as Hoechst Pakistan Limited, Sanofi-Aventis has a presence in more than 100 countries around the world. The company is armed with an asset size of Rs 6.5 billion, as of December 2013. It was listed on Karachi Stock Exchange in 1977, and as of now it has a market capitalisation of Rs 9 billion. In terms of market capitalisation, Sanofi ranks as the fourth largest company in the listed pharmaceutical sector in Pakistan.
In terms of pharmaceutical business, the company claims to be the seventh largest pharmaceutical company in Pakistan, retaining a market share of 4 percent.
Sanofi's diversified portfolio Sanofi-Aventis holds a diversified portfolio in the pharmaceutical segment. From diabetes and pain management to epilepsy and cardiology, the company grabs hold of an extended array of medical solutions.
The firm also maintains presence in vaccines and consumer healthcare business and continues to introduce new products to its portfolio. In 2013, Sanofi launched 9 products in the pharmaceutical portfolio and a total of 7 new products to its consumer healthcare portfolio. The company aims to expand its consumer healthcare business in future by stretching out the Chattem's range. In 2012, Sanofi Pakistan acquired Chattem product, Selsum Blue shampoo.
1Q CY14: Financial performance Sanofi kicked off 2014 on an encouraging note, with its bottom line boasting a sharp rise of more than 3 times. Recent appreciation in rupee has surely lent a hand in comforting the monotonous performance of Sanofi. A double-digit growth in the bottom line of the company and consequent rise of nearly 300 bps in gross margin speak volumes of the observation.
Consumer business of the firm remained the front-runner during the quarter under review, rising by over 26 percent when compared to the corresponding period of last year. According to company's director report, this increase is attributable to company's increased focus on marketing initiatives in order to boost brand awareness and presence across the country. Pharmaceutical business followed the lead posting an increase of 21 percent during the same period. The vaccines' business, however, stayed the key laggard with its sales declining by 3 percent over the same period of last year. Improvement in rupee-dollar parity also contributed to an increase of Rs 61 million in firm's other income head on account of exchange gains.
Recapping financial performance in 2013 Following a remarkable period in 2012, where the bottom line of Sanofi boasted an increase of more than two times, 2013 proved to be a rather charmless year for company's profitability. Top line of the firm grew at a listless pace of mere 2 percent.
According to company's director report of 2013, the pharmaceutical segment underwent a decline of 2.14 percent. This pales when compared to a growth rate of 18 percent recorded in 2012. To counterbalance, the company concentrated on hunting for new business opportunities for growth, where penetration in the pharmaceutical market of Afghanistan and launch of new product lines were amongst the ones. "During the year, the export sales to Afghanistan market touched Rs 509 million (2012: Rs 349 million) registering a growth of 45.9 percent backed by higher volumes of established brands", the Director report for the year noted. And this focus on penetrating in the Afghan market led company's exports to soar to seven percent of total gross sales in 2013 (2012: five percent).
On the costs front, distribution and marketing expenses underwent a decline of seven percent during the year owing to reduced expenditures incurred on marketing campaigns. Perhaps, this is why revenue during the period saw a meagre increase.
Net margin slid by 200 bps to four percent in 2013. The decline is attributable to a drop of more than 80 percent in firm's other income. Last year, the company booked a gain on sale of Wah Site--a one-off event that resulted in a significant drop in other income this year.
Going forward Company's future plans include gaining entry into the animal healthcare business, which is in line with company's broad strategy of diversifying its product portfolio. Owing to stringent regulatory framework in the pharmaceutical industry in Pakistan, focus on product diversification, perhaps, tops the list of almost every pharmaceutical company in the country, nowadays. Rupee appreciation, along with focus on diversification has helped pharmaceutical companies to survive during hard times. And in the case of Sanofi, the company seems to have started reaping the fruits rupee appreciation in the first quarter ended March 2014.
Taking about the industry as a whole, pharmaceutical companies have been facing a hard time maintaining profitability growth. Ayesha Tammy Haq, in a recently published interview with BR Research lamented on the fact that overregulation and an unpredictable price structure have forced multinational pharmaceutical companies to walk out of Pakistan over the past many years. She stressed on the importance of having a fair and rational pricing mechanism--a pricing policy and a formula that determines the increase in drug prices at the beginning of each year.
Sadly, in Pakistan, the emphasis of government rests much on the patients and the voices of pharmaceutical manufacturers have been ignored. 2001 was the last time pharma companies were given an increase on drug prices. Nearly 13 years have lapsed, and the government has made no effort to pay heeds to the issues of this sector!

================================================================

Sanofi-Aventis (Financial Highlights)

================================================================

Rs (mn)                             Dec-12      Dec-13    Mar-14

================================================================

Net sales                            8,628       8,791     2,257

Cost of sales                       (5,999)     (6,114)  (1,612)

Gross profit                         2,629       2,677       645

Distribution and marketing costs    (1,567)     (1,458)    (428)

Administrative expenses               (221)       (237)     (56)

Other operating expenses              (229)       (249)     (15)

Other income                           257          40        67

Operating profit                       869         773       213

Finance costs                         (159)       (233)     (69)

Profit before taxation                 710         540       144

Taxation                              (223)       (230)     (66)

Profit after taxation                  487         310        78

Earnings per share (Rs)              50.52       32.12      7.94

================================================================