Financial Daily from THE HINDU group of publications
Sunday, Oct 31, 2004
Financial Daily from THE HINDU group of publications Sunday, Oct 31, 2004 |
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Investment World
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Stocks Markets - Recommendation Aventis Pharma: Buy
FRESH exposures can be considered in the stock of Aventis Pharma, which trades at Rs 956. The stock has been among the best performers in the MNC pharma space having trebled over the past 18 months. Business Line has multiple buy recommendations on the stock over this timeframe, the latest being when the stock was trading at Rs 775 (edition dated May 09, 2004). We believe that the stock holds scope for further appreciation from the current level. However, the appreciation is likely to be steady, opposed to the order-of-magnitude gains witnessed recently. At the current price, the stock trades at about 16 times its expected per share earnings for CY04; at this valuation, the stock still trades at a discount compared to its frontline peers such as GlaxoSmithKline and Pfizer. Our sanguinity on Aventis' prospects is also reinforced by its robust financial performance in the latest quarter. Topline has been driven by a combination of a strong performance in the domestic market and a solid showing on the exports front. Another noteworthy aspect of the performance has been the 10-percentage-point improvement in operating margins, aided by cost-control measures. The strength that Aventis' products command within the medical community is manifest in the growth witnessed in some of its key brands such as Amaryl, Clexane, Cardace and Targocid. Brands belonging to the mature category such as Combiflam and Rabipur have also maintained their leadership positions. In our view, Aventis' strengths in marketing should ensure that the momentum in key brands is sustained. As exports of anti-diabetic Daonil to its parent ramps up, we believe it will help in sustaining margins at the current healthy levels. Aventis has consistently introduced products from its parent's pipeline in spite of India not recognising product patents as yet (Lantus and Actonel are two such recent examples). The pipeline should expand consequent to Aventis' merger with Sanofi. On the positive side, the therapeutic spaces in which the two companies operate have little overlap. However, should Sanofi decide to operate through its wholly owned subsidiary in India, it will be a negative and, as such, the principal risk to our recommendation.
Nath Balakrishnan
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