The multinational pharma giant, Sanofi-Aventis (PSX: SAPL) was initially incorporated in 1967 as Hoechst Pakistan Limited. The company began manufacturing pharmaceuticals and specialty chemicals in 1972 and listed itself on the KSE in 1977. In 1999, Hoechst AG and the French company Rhone Poulenc SA globally merged their life sciences business into a new company known as Aventis SA. Finally, in 2004, this new company was acquired by Sanofi Synthelabo to form Sanofi-Aventis.
Today, Sanofi stands as the 7th largest pharmaceutical in Pakistan, presently with a market share of around 3.5 percent. Its market capitalisation is north of Rs 20.4 billion. The company is in the business of pharmaceuticals, vaccines, and consumer healthcare. It boasts household-name brands like Flagyl, Telefast, and Amaryl to name just a few, and is a leader in the field of diabetes.
Pattern of Shareholding
Over half of SAPL stock (53%) is in the hands of its holding company - one SECIPE, France, as per the company's reports. The ultimate parent of the group is Sanofi SA, France. The next sizeable chunk (19%) is with IGI Insurance. Just over four percent of SAPL stock is in the hands of the public. Little wonder then, that Sanofi-Aventis stock has the lowest turnover on the bourse.
Prior Performance
Credit goes to Sanofi for managing to grow its topline year after year. Last year saw record revenues and gross profit. However, the bottomline has taken on a declining trend, reaching a record low that same year. This has been due to, inter alia, a significant increase in administrative and distribution expenses over the past two years, owing to advertising and promotional activities to support new product launches.
In 2012, Sanofi-Aventis acquired Selsun Blue shampoo from Abbott, and has been expanding this range. During 2013, the company launched 16 new products - nine in the pharmaceutical range and seven in the consumer healthcare (CHC) product range. In 2014, it launched the new products Jevtana and Ciprozee, whereas line extensions to existing products Clarofan 2G, CoPlavix, and Taxotere injection were rolled out.
Since Sanofi reports all its operations - vaccines, CHC, and pharmaceuticals - as one segment, it's difficult to comment on the margins. However, a break-up of revenues reveals that vaccines contribute little to the firm's topline (6%), as opposed to pharmaceuticals and CHC (94%). Growth in the vaccines business has been relatively mute (five-year CAGR 2.42%), whereas the pharma and CHC business have seen sturdy growth over the period (five-year CAGR 7.53%). Some of the brands worth mentioning are Flagyl, Lantus, Amaryl, Haemaccel, Claforan, and Aprovel.
The pharma industry of Pakistan remains highly regulated, with prices of all medicines fixed since 2001. In 2013, the government issued an SRO to allow a price increase of up to 15 percent on certain products, but this was repealed within two days. Most pharma companies obtained a stay order on the price increase, including Sanofi. Despite this, the net margins have been suffering.
The company doesn't earn too much forex; as of 2015, exports accounted for a mere 6 percent of sales. Sanofi has managed to increase its exports, but growth has slowed down over the past two years. Moreover, the company has yet to find any meaningful market other than Afghanistan.
Recent performance
Sanofi has been having an excellent 2016; for the nine months ended 2016, the company's sales were up by 13 percent year-on-year, while costs only rose by three percent. As a result, gross profit popped by 43 percent, while the bottomline shot up six-fold over last year.
The net sales of the pharmaceutical business for the nine months increased over 12 percent year-on-year, but the real growth came from vaccines; the vaccines business' net sales grew by 44 percent over 9MCY15. However, exports plummeted by over 33 percent year-on-year.
Gross margins were up by around 700 bps. The Director's Report lists a number of reasons for the improvement - a favourable exchange impact on foreign currency imports; cost-cutting and efficiency measures taken by the management; and a price increase on some products at the start of the calendar year. As a result, the net margins have finally reached a respectable level as compared to last year.
Outlook
The deadlock remains between DRAP and the pharmaceutical industry. DRAP had committed to taking decisions on applications pending with it with respect to price increase on specific products by December 2015.
After it failed to do so, Sanofi-Aventis - along with a host of other pharmaceutical companies - approached the Sindh High Court at the start of this year and obtained an order for increasing the prices of its pending cases. Thus, some relief has been provided.
As for Sanofi, the company seems to be witnessing a boom in its vaccines business, if the last quarterly report is anything to go by. The exports are dropping, but their contribution to sales has always been minimal, so it's nothing to lose sleep over. Armed with a better price on some of its products and what seems to be organic growth, the company looks set to report healthier bottomline going forward.