1QCY2013 Result Update | Pharmaceutical

April 30, 2013

Sanofi India
Performance Highlights
Y/E Dec. (` cr) Net sales Other income Operating profit Net profit 1QCY2013 363 42 47 44 4QCY2012 401 38 51 45 % chg (qoq) (9.4) 8.6 (6.5) (1.1) 1QCY2012 323 29 49 40 % chg (yoy) 12.5 43.6 (3.7) 10.5

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 5,884 (409) 0.4 2,899 / 2002 1,967 10 19,504 5,930 SANO.BO SANL@IN

`2,555 -

Source: Company, Angel Research

For 1QCY2013, Sanofi India reported results lower than expectations, both the on top-and bottom-line fronts. Sales grew by 12.5% yoy; however the net profit grew by just 10.5% yoy, due to lower-than-expected OPM. Given the valuations, we recommend a Neutral rating on the stock. Below-expectation results: Sanofis net sales grew by 12.5% yoy to `363cr for 1QCY2013, lower than our estimate of `401cr. The company reported a gross margin of 51.8% (50.9% in 1QCY2012), higher than our estimate of 49.5%. However, the OPM came in at 13.1%, lower than our estimate of 14.6%, due to a higher rise in other expenses, which rose by 28% yoy. The net profit came in at `44cr, up by 10.5% yoy, lower than our estimate of `50.1cr. Outlook and valuation: We expect net sales to post a 13.3% CAGR to `1,917cr and EPS to register a 13.4% CAGR to `99.1 over CY201214. At current levels, the stock is trading at 27.6x and 25.8x CY2013E and CY2014E earnings, respectively. We recommend a Neutral rating on the stock. Key financials
Y E Dec (` cr) Net Sales % chg Net Profit % chg EPS (`) EBITDA(%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 60.4 19.8 14.5 5.3

Abs. (%) Sensex Sanofi India

3m (2.5) 12.7

1yr 12.6 15.2

3yr 11.1 37.8

CY2011 1,230 13.3 191.7 23.7 83.2 14.3 30.7 18.0 13.5 5.3 4.6 32.1

CY2012 1,494 21.5 177.3 (7.5) 77.0 15.6 33.2 15.3 12.1 4.9 3.7 23.4

CY2013E 1,682 12.6 212.8 20.1 92.4 16.6 27.6 15.7 13.2 3.9 3.1 18.8

CY2014E 1,917 14.0 228.1 7.2 99.1 16.6 25.8 14.8 12.5 3.9 2.6 15.4

Sarabjit Kour Nangra

+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Sanofi India | 1QCY2013 Result Update

Exhibit 1: 1QCY2013 performance

Y/E Dec. (` cr) Net sales Other income Total income PBIDT OPM (%) Interest Depreciation & amortisation PBT & exceptional items Less : Exceptional items Profit before tax Provision for taxation Adj net profit EPS (`)
Source: Company, Angel Research

1QCY2013 363 42 404 47 13.1 0.3 22 66 0 66 21 44 19.3

4QCY2012 401 38 439 51 12.7 0.3 22 66 0 66 22 45 19.5

% chg (qoq) (9.4) 8.6 (7.9) (6.5)

1QCY2012 323 29 351 49 15.3 0

% chg (yoy) 12.5 43.6 15.1 (3.7)

CY2012 1,494 120 1,614 233 15.6 1

CY2011 1,230 139 1,369 176 14.3 0 31 284 0 284 93 191 83.1

% chg yoy 21.5 (13.6) 17.9 32.1

0.0 0.0 0.0 (0.9) (1.1)

18 59 0 59 19 40 17.4

21.9 11.6 11.6 10.4 10.5

90 262 0 262 85 177 76.8

189.1 (7.9) (7.9) (8.4) (7.6)

Exhibit 2: 1QCY2013 Actual Vs Angel estimates

` cr Net sales Other income Operating profit Tax Net profit
Source: Company, Angel Research

Actual

Estimates

Variation (%)

363 42 47 21 44

401 38 59 24 50

(9.5) 8.6 (19.2) (11.7) (11.6)

Revenue growth lower than expectation:

Sanofis net sales grew by 12.5% yoy to `363cr for 1QCY2013, lower than our estimate of `401cr. The company incurred a planned expenditure in its critical project Prayas and towards entry into the OTC market. These projects are slated to be the future growth drivers for the company.

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Exhibit 3: Sales trend

450 400 350 300 (` cr) 250 200 150 100 50 0 1QCY2012 2QCY2012 3QCY2012 4QCY2012 1QCY2013
Source: Company, Angel Research

374 323

397

401 363

OPM declines by 219bp: The company reported a gross margin of 51.8% (50.9% in 1QCY2012), higher than our estimate of 49.5%. However, the OPM came in at 13.1%, lower than our estimate of 14.6%, due to a higher rise in other expenses, which rose by 28% yoy.

Exhibit 4: OPM trend

24 21 18 15 20.3 15.3 14.0 13.1 12.7

(%)

12 9 6 3 0 1QCY2012 2QCY2012 3QCY2012

4QCY2012

1QCY2013

Source: Company, Angel Research

Bottom-line below estimates: The net profit came in at `44cr, up 10.5% yoy, lower than our estimate of `50.1cr.This was mainly on account of lower-than-expected OPM during the quarter.

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Exhibit 5: Adj. net profit trend

60 51 50 40 40 41 45 44

(` cr)

30 20 10 0 1QCY2012 2QCY2012 3QCY2012 4CY2012 1QCY2013

Source: Company, Angel Research

Company Background
Sanofi, a leading global pharmaceutical company, operates in India through four entities Sanofi India, Sanofi-Synthelabo (India) Ltd, Sanofi Pasteur India Private Ltd and Shantha Biotechnics. Sanofi India focuses its activities on seven major therapeutic areas, namely Cardiovascular diseases, Metabolic Disorders, Thrombosis, Oncology, Central Nervous System disorders, Internal Medicine and Vaccines. Predominately a domestic company, the company is the second largest MNC in India, enjoying a market share of 1.4%.

Recommendation rationale
Focus on top-line growth: Sanofi recorded a revenue CAGR of 9.1% to `1,494cr over CY200612 on the back of slower-than-expected growth on the domestic formulation front and loss of distribution rights of Rabipur vaccine. Going forward, to grow in line with the industrys average growth rate in the domestic segment, Aventis has rolled out its Prayas project, an initiative to increase its penetration in rural areas. Under the project, the company would launch low-price products in the anti-infective and NSAID therapeutic segments and increase its field force. The project is expected to provide incremental revenue of `500cr over the next five years. Sanofi also plans to launch CVS and vaccine products in the domestic market post the acquisition of Shantha Biotech by its parent company. Further during CY2011, the company has acquired the nutraceutical business of Universal Medicare Pvt. Ltd, which aids the companys foray into the nutarceutical business, thus aiding it in diversifying, and boosting overall growth of its domestic formulation business. We expect the companys net sales to log a 13.3% CAGR over CY201214, majorly driven by its domestic formulation sales. Valuation: We expect net sales to post a 13.3% CAGR to `1,917cr and EPS to register a 13.4% CAGR to `99.1 over CY201214. At current levels, the stock is trading at 27.6x and 25.8x CY2013E and CY2014E earnings, respectively. We recommend a Neutral rating on the stock.

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Exhibit 6: Key assumptions

CY2013E Net sales growth (%) Domestic sales growth (%) Export sales growth (%) Growth in employee expenses (%) Operating margins (%) Net profit growth (%) Capex (` cr)
Source: Company, Angel Research

CY2014E 14.0 15.0 6.0 13.8 16.6 5.9 70.0

12.6 15.0 6.0 11.7 16.6 20.1 67.0

Exhibit 7: One-year forward P/E

3,000 2,500 2,000

(` cr)

1,500 1,000 500 0

Source: Company, Angel Research

Exhibit 8: Recommendation Summary

Company Alembic Pharma. Aurobindo Pharma Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Ranbaxy* Sanofi India* Sun Pharma Reco Accumulate Buy Buy Accumulate Neutral Buy Neutral Buy Buy Accumulate Neutral Neutral Neutral CMP Tgt. price (`) 114 191 792 406 2,024 69 2,254 63 509 702 452 2,555 951 (`) 122 264 962 463 155 78 559 655 Upside % 6.9 38.2 21.5 14.0 200.7 42.5 32.9 12.9 PE (x) 9.4 9.9 16.5 17.5 19.5 3.3 26.0 7.0 11.3 17.7 20.0 25.8 26.8 FY2015E EV/Sales (x) 1.1 1.2 2.0 2.7 2.7 0.8 4.9 0.8 1.7 2.3 1.5 2.6 6.0 EV/EBITDA (x) 5.7 7.5 11.3 11.9 13.1 3.8 16.3 5.4 7.9 10.8 11.7 15.4 14.0 FY12-15E 20.9 58.2 14.8 17.6 5.4 47.9 5.8 21.5 30.6 26.8 (15.0) 13.4 0.2 FY2015E 29.0 12.0 18.5 17.4 15.3 12.0 39.9 14.6 26.0 28.2 12.9 12.5 27.0 29.8 18.0 24.7 16..2 19.6 13.7 31.9 15.8 25.3 24.7 18.5 14.8 19.3 CAGR in EPS (%) RoCE (%) RoE (%)

Source: Company, Angel Research; Note: *December year ending

April 30, 2013

May-07 Jul-07 Sep-07 Dec-07 Feb-08 May-08 Jul-08 Oct-08 Dec-08 Mar-09 May-09 Aug-09 Oct-09 Jan-10 Mar-10 Jun-10 Aug-10 Nov-10 Jan-11 Mar-11 Jun-11 Jul-11 Oct-11 Dec-11 Mar-12 May-12 Jul-12 Oct-12 Dec-12 Mar-13
Price 10x 15x 20x 25x

Sanofi India | 1QCY2013 Result Update

Profit & loss statement

Y/E Dec. (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& amortisation EBIT % chg (% of Net Sales) Interest & other charges Other income (% of PBT) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Extra-ordinary items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 157 157 (5.3) 16.2 68 68 (5.2) CY2009 CY2010 CY2011 CY2012 CY2013E CY2014E 996 21 974 52 1,027 0.7 827 482 45 144 156 148 (20.4) 15.2 17 130 (22.1) 13.4 0.1 59 24.3 241 (7.0) 241 84.0 34.8 157 1,119 22 1,085 59 1,144 11.4 942 539 53 163 187 143 (3.1) 13.2 21 123 (6.0) 11.3 2.9 55 23.4 233 (3.4) 234 79.0 33.8 155 75.7 231 155 (1.5) 21.3 67 67 (1.6) 1,259 29 1,230 66 1,296 13.3 1,054 619 61 174 199 176 22.9 14.3 31 145 18.1 11.8 0 74 26.0 284 21.9 284 92.6 32.6 192 192 192 23.7 15.6 83 83 23.7 1,531 37 1,494 79 1,573 21.4 1,261 736 74 213 239 233 32.5 15.6 90 143 (1.1) 9.6 1 41 15.7 262 (7.7) 262 85.0 32.4 177 177 177 (7.5) 11.9 77 77 (7.5) 1,724 42 1,682 79 1,761 11.9 1,403 826 84 238 255 279 19.6 16.6 97 181 26.6 10.8 54 17.2 315 20.0 315 102.0 32.4 213 213 213 20.1 12.7 92 92 20.1 1,959 42 1,917 66 1,748 12.9 1,599 942 95 271 291 318 7.3 16.6 100 217 5.7 10.2 54 18.6 337 3.8 337 109.3 32.4 228 228 228 5.9 12.0 99 99 5.9

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Balance sheet
Y/E Dec. (` cr) Equity share capital Reserves & surplus Shareholders funds Long term provisions Other long term liabilities Total loans Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Goodwill Capital Work-in-Progress Long term loan and advances Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Deferred tax assets Total assets 335 190 145 27 5.2 1,014 586 144 284 274 740 15 932 375 204 171 13 0.4 1,214 655 257 302 394 820 10 1,014 955 225 730 30 75 0.4 667 234 174 327 357 310 (8) 1,137 959 256 703 40 58 0.4 832 429 208 394 387 446 (21) 1,226 989 354 635 40 58 0.4 1,313 636 234 443 435 877 (21) 1,533 1,019 454 565 40 58 0.4 1,449 678 266 505 496 953 (21) 1,538 CY2009 CY2010 CY2011 CY2012 CY2013E CY2014E 23 909 932 932 23 991 1,014 1,014 23 1,094 1,117 1 19 1,137 23 1,181 1,205 20 1,226 23 1,489 1,513 20 1,533 23 1,811 1,517 20 1,538

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Cash flow statement

Y/E Dec. (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2009 CY2010 CY2011 CY2012 CY2013E CY2014E 241 17 4 52 92 118 23 52 75 (43) (62) (105) 89 497 586 234 21 (10) 59 79 107 12 (5) 59 66 (55) (48) (103) 69 586 655 284 31 55 66 74 230 575 0 66 641 (88) (1,205) (1,292) (421) 655 234 282 98 71 79 93 278 (17) 79 62 (87) (59) (146) 195 234 429 291 108 27 79 93 254 (67) 0 79 12 (95) 36 (58) 207 429 636 291 108 34 66 93 274 (70) 0 66 41 (95) (178) (273) 42 636 678

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Sales EV/EBITDA Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Inventory / Sales (days) Receivables (days) Payables (days) 72 25 49 75 18 47 70 19 48 65 19 49 32 9 24 32 9 21 14.8 40.5 17.9 12.6 36.9 15.9 13.5 23.8 18.0 12.1 17.6 15.3 13.2 22.5 15.7 15.9 22.7 16.7 68.4 68.4 75.9 20.0 404.6 67.3 67.3 109.1 55.0 440.3 83.2 83.2 96.7 33.0 484.8 77.0 77.0 116.0 33.0 523.3 92.4 92.4 134.7 35.1 656.7 99.1 99.1 142.6 35.1 658.8 37.4 33.7 6.3 5.4 35.9 38.0 23.4 5.8 4.8 36.5 30.7 26.4 5.3 4.6 32.1 33.2 22.0 4.9 3.7 23.4 27.6 19.0 3.9 3.1 18.8 25.8 17.9 3.9 2.6 15.4 CY2009 CY2010 CY2011 CY2012 CY2013E CY2014E

April 30, 2013

Sanofi India | 1QCY2013 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Sanofi India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 30, 2013

10