A. K. Stockmart Pvt. Ltd.

Aventis Pharma Ltd.

Steady Sailing INITIATING COVERAGE ACCUMULATE
BSE NSE Reuters Bloomberg Industry Market Cap (Rs. Mn) Equity (Rs. Mn) Free Float (Mn. Shares) Face Value (Rs.) 52 Week Range (Rs.) Sensex Nifty 500674 AVENTIS AVPH.BO AVEN IN Pharmaceutical 42,606.7 230.3 9.12 10 2,059.0/1,275.0 18,048.85 5,414.15

CMP Target Price Potential Upside

Rs. 1,850.0 Rs. 2,094.0 13%

Investment Positives
Aventis Pharma Ltd. (APL) is the Indian subsidiary of the global pharmaceutical giant Sanofi-Aventis S.A. The parent ranks amongst the top 4 pharmaceutical companies of the world & holds about 60.4% in Aventis Pharma Ltd. Sanofi-Aventis lends strong support to Aventis Pharma, in terms of new product introductions in the Indian domestic markets from its product basket & easy access to its strong & rich product pipeline. The parent has also looked at increasing its stake in the Indian subsidiary. APL has transformed itself into a company catering to the chronic & critical-care therapeutic segments. It has several products that are market leaders within their respective segments & have grown at double digits over the years. APL is also achieving better results on the exports front year after year. We expect these products to continue their growth momentum & help the company achieve higher profitability going forward. With consistently growing brands in its product basket & new product launches every year, the company generates huge cash flows. As of December 2009, APL had net cash balance of Rs. 5,860 Mn. on its Balance Sheet, translating to Rs. 254.5 per share. This free cash can be used by the company for suitable acquisitions within the Indian pharma space. Over the years, APL has maintained a constant dividend payout in the range of 25-30%.
60%

Shareholding Pattern
12%

28%

Valuations
Promoters Institutions Indian Public

Aventis v/s BSE 500

1.80 1.60 1.40 1.20 1.00 0.80 13-Nov-09 21-Aug-09 30-Apr-10 28-May-10 16-Aug-10 25-Jun-10 17-Oct-09 18-Sep-09 11-Dec-09 23-Jul-10 6-Feb-10 5-Mar-10 8-Jan-10 1-Apr-10 Aventis BSE 500

We expect the company to achieve decent growth in its top-line & bottom-line over the next couple of years. Besides, cash rich & debt free status adds to the defensive nature of the stock. At CMP of Rs. 1,850.0, the scrip trades at 25.2x CY10E & 22.1x CY11E earnings of Rs. 73.5 & Rs. 83.7 respectively. We initiate coverage on the stock with an ACCUMULATE rating with a price target of Rs. 2,094.0, valuing the MNC at 25x CY11E earnings.

(Rs. Mn) CY08 CY09 CY10E CY11E

Net Revenue 9,832.7 9,744.1 10,460.8 11,297.6

YoY (%) 12.6% -0.9% 7.4% 8.0%

EBITDA 2,781.0 2,588.8 2,745.9 3,113.3

EBITDA (%) 28.3% 26.6% 26.2% 27.6%

Adj PAT 1,662.0 1,574.1 1,692.9 1,928.8

YoY (%) 15.1% -5.3% 7.5% 13.9%

Adj. EPS (FD) 72.2 68.4 73.5 83.7

RoCE (%) 31.3% 25.9% 24.6% 25.0%

RONW (%) 20.0% 16.9% 16.3% 16.5%

P/E (x) 25.6 27.1 25.2 22.1

Div. Payout (%) 22.2% 29.3% 30.0% 30.0%

17th August 2010

Table of Contents
Company Profile3 Investment Rationale6 Tracking the Performance7 JV Chiron Behring Vaccines Pvt. Ltd..7 Parent Company Sanofi-Aventis S.A..7 Fellow Subsidiary Sanofi-Synthelabo (India) Ltd...10 Healthy Financials ...13 Risks & Concerns .14 Valuation & Recommendation ...15 Quarterly Performance .15 Financial Details21

17th August 2010

Company Profile
Aventis Pharma Ltd. (APL) is the Indian arm of one of the worlds leading pharmaceutical company Sanofi-Aventis. Sanofi-Aventis S.A, along with its 100% subsidiary Hoechst GmBH, holds about 60.4% in APLs paid-up capital of Rs. 230.3 Mn. Aventis Pharma Ltd. clocked a turnover of Rs. 9,744.1 Mn. for the year ended 31st December 2009, a minor dip of 0.9% from 2008. With 33% of its products falling under the DPCO net, APL currently enjoys a market share of 1.63% & ranks 13th in the Indian domestic pharmaceutical market. In India, APL operates in seven major therapeutic areas, replicating the parents areas of operations. Focus therapeutic segments include Cardiovascular Diseases, Thrombosis, Metabolic Disorders, Oncology, Central Nervous System, Internal Medicines & Vaccines. Its Internal Medicines portfolio includes drugs for a wide range of general medical conditions such as Allergies & Bacterial Infections. Many of the companys brands like Cardace, Combiflam, Amaryl, Lantus & Allegra feature in the top 100 brands of the retail market & rank in the top 3 within their respective segments. APL has two world class manufacturing facilities in India, for the manufacture of API & Formulations. These are located at Ankleshwar in Gujarat (for chemicals & pharmaceuticals) & at Verna in Goa (for pharmaceuticals). Both these manufacturing sites are ISO 14001:2004 certified & also by other regulatory authorities like WHO, TGA (Australia), MCC (South Africa) etc. These sites have also been identified as global sourcing units by the parent Sanofi-Aventis. APL is one of the few MNC pharma companies that focuses on exports equally & exports API & Formulations to the parent & fellow subsidiaries worldwide. Company Background 1956 Upto 2000 2001 2004 2006 2010
Incorporated in May 1956, under the name of Hoechst Fedco Pharma Pvt. Ltd. Over the years, its name was changed to Hoechst Pharmaceuticals Pvt. Ltd., Hoechst India Ltd. and Hoechst Marion Roussel Ltd. Company go it current name Aventis Pharma Ltd. (APL) w.e.f July 2001

Sanofi-Aventis acquired 50.1% stake in APLs paid-up capital

Sanofi-Aventis increased its stake to 50.12% through an Open Offer at Rs. 792.2 per share. Sanofi-Aventis further acquired 2.4 Mn. shares (10.3% of outstanding equity) from UB Group companies at Rs. 1,750 per share

17th August 2010

Aventis Pharma Ltd. - Complete Product List

Therapeutic Area
Cardiovascular Diseases

Product Name
Lasix (frusemide) Clexane (enoxaparin sodium) Cardace (ramipril)
Amaryl (glimepiride) Cetapin XR (metformin) Daonil (glibenclamide) Daonil M (glibenclamide + metformin) Insuman (NPH Human Insulin) Trental 400 (pentoxifylline) Lantus (insulin glargine)

Metabolics

Oncology

Taxotere (docetaxel) Granocyte (lenograstim - rHUG-CSF)

Allegra (fexofenadine hydrochloride) Allegra Suspension (fexofenadine HCI) Avil (pheniramine maleate) Cosavil (paracetamol, phenylephrine, chlorpheniramine maleate) Levohext (levocetirizine)

Respiratory System

Central Nervous System Dermatology

Frisium (clobazam)
Proctosedyl (framycetin sulphate, gramicidin, dexamethasone) Sofradex (framycetin sulphate, dexamethasone) Sofradex F (framycetin sulphate, dexamethasone, clotrimazole) Soframycin (framycetin sulphate) Combiflam (ibuprofen, paracetamol) Combiflam Cream (Methyl Salicylate, Menthol & Camphor) Baralgan M (analgin) Combihext (aceclofenac, paracetamol) Hextradol (tramadol) Novalgin (analgin) Targocid (teicoplanin) Claforan O (cefixime) Quinhext (gemifloxacin) Rulide AZ (azithromycin) Tacehext (ceftriaxone, tazobactam) Cefrom (cefpirome sulphate) Tavanic (levofloxacin) Tarivid (ofloxacin) Hostacycline (tetracycline HCI)

Analgesics

Anti-Infectives

Bone & Joint

Arava (leflunomide) Actonel (risedronate sodium)

Baralgan D (drotaverine) Baralgan DM (drotaverine, mefenamic acid) Nausehext (ondansetron) Prazohext (rabeprazole) Prazohext D (rabeprazole, domperidone)

Gastrointestinal Disorders

17th August 2010

Investment Rationale
1. TRACKING THE PERFORMANCE

Aventis Pharma Ltd. has a long standing operating history in the Indian domestic pharma space. Over the years, APL has transformed itself into a company catering to the chronic (diabetes, cardiovascular) & critical-care therapeutic segments. The company has been aggressive in launching new products in the Indian domestic markets, even before the product patent regime came into effect. Aventis Pharma has received active support from its parent for launching of new products, which can be gauged from the fact that 6 out of the top 15 products of the parent company have been launched in India. Recent Products Launches
Recent Product Launches Product Name Cardace M Combiflam Cream Cetapin P Lantus Solostar Apidra Solostar Apidra Cosavil Flu Tablets Baralgan D Metformin Amaryl M Daonil M Cardace H (10mg.) Allegra Suspension Cetapin XR (500mg & 1g) Lantus Actonel Therapeutic Area CVS Analgesics Oral anti-diabetes Anti-Diabetes Anti-Diabetes Anti-Diabetes Flu Vaccine Analgesics Oral anti-diabetes Metabolics Metabolics CVS Anti-histamine Oral anti-diabetes Anti-Diabetes Osteoporosis Year of Launch Q1 2010 2009 2009 2008 2008 2008 2008 2008 2007 2007 2007 2007 2006 2006 2003 2003 World's only once a day insulin, world no. 1 insulin brand Line-extension for Cetapin XR Line-extension for Amaryl Line-extension for Daonil Line-extension for Cardace Line-extension for Allegra Line-extension for Cetapine Line-extension for Lantus Line-extension for Apidra Remarks Line-extension for Cardace

Source: Company, AKS Research

17th August 2010

Product Performance Aventis Pharma Ltd. has an impeccable track record of brand building in the Indian domestic market with its strategic brands recording double digit growth consistently. Brand building & spreading awareness about its products has been the key to strong performance of the companys products. For the year ended December 2009, Domestic Sales stood at Rs. 7,455 Mn., contributing 76.5% to the companys topline & marking a growth of 12.4% over 2008. In the key therapeutic areas that APL operates in, the top 6 brands of the company have grown faster than their respective markets & have maintained their leadership positions, achieving significant growth over 2008.

Product Performance Table Product Name Frisium Apidra Cetapin Group Daonil Group Therapeutic Area CNS Anti-Diabetes Oral Anti-Diabetes Metabolics 64.00% 2.90% 65.00% 19.00% 3.40% 13.30% 45.00% 18.40% 46.50% No. 1 in defined market 31.40% No. 1 in injectible anticoagulant market No. 1 brand in CVS market, became only the second brand in chronic therapy to 26.30% reach the milestone of Rs 100 crore in sales. 23rd largest brand 8.70% 7.80% 3rd largest insulin brand in India No. 1 in antihistaminic market Ranked No. 3 in liquid antihistaminic market One of the five most prescribed brands in oral anti-diabetic market Recorded sales of 1.6 Billion tablets, 3rd highest prescribed brand in the Pharmaceutical market. 28th largest brand 1.50% 6.00% 4.50% 6.20% Volume leadership with over 1 Billion tablets Y-o-Y Growth 22.00% 2.00% 6.00% Became No. 4 metformin brand within 4 years of its launch Market Remarks Share Ranked No. 1 in Anti-epileptic Drug

Cosavil Flu Tablets Flu Vaccine Targocid Clexane Cardace Lantus Allegra Anti-infectives CVS CVS Metabolics Anti-histamine

Allegra Suspension Anti-histamine Amaryl Baralgan Group Combiflam Metabolics Analgesics Analgesics 18.80% 70.00% 19.50% 4.50%

Combiflam Cream Analgesics Avil tablets Taxotere Anti-histamine Oncology

Source: Company, AKS Research

17th August 2010

Export Performance Aventis Pharma has been one of the few MNC pharmaceutical companies operating in India that focuses equally on exports as well. Both its manufacturing plants at Ankleshwar & Verna, have been identified by the parent Sanofi-Aventis as global sourcing units, whereby APL is able to export a number of bulk drugs manufactured from these facilities to the parent & fellow subsidiaries across the globe. APL also exports products to other countries like Russia, Ukraine, Germany, Australia, U.K. etc. For the full year 2009, the company achieved Export Sales of Rs. 2,290 Mn., marking an increase of 9% over 2008. Sourcing of products from APL to Sanofi-Aventis group companies grew by 76%, contributing 39% of Total Exports. We expect the company to continue its focus on exports in the future as well.
8,000.0 7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 0.0 2005 2006 2007 2008 2009

Domestic Sales
Source: Company, AKS Research

Export Sales

2.

JV Chiron Behring Vaccines Pvt. Ltd.

Aventis Pharma has a joint venture (49% holding) with Novartis Vaccines & Diagnostics Inc. named Chiron Behring Vaccines Pvt. Ltd. (CBVPL). During 199798, this joint venture company started to manufacture an anti-rabbies vaccine Rabipur. Under this JV agreement, Aventis Pharma had exclusive rights for the distribution of Rabipur in India & Nepal for 10 years. Rabipur had been one of the top brands for the company over the years & crossed sales mark of Rs. 1 Bn. in 2005. Sales of Rabipur for 2008 stood at Rs. 1,179.43 Mn. (approx. 12% of total revenues). However, this agreement had not been renewed with effect from 1st May 2008. The Arbitrator awarded the case against Aventis Pharma Ltd. & effective 19th February 2009, APL has stopped the distribution of Rabipur. For the first quarter ended March 2009, the company reported domestic sales of Rabipur at Rs. 92 Mn. Post this event, under a Consignment Agency Agreement, Aventis Pharma started marketing & distributing the anti-rabbies vaccine Verorab from Sanofi-Pasteur (the vaccine arm of its parent). However, on Novartis Vaccines & Diagnostics appeal to the International Court of Arbitration, the Bombay High Court has restrained APL from distributing Verorab. Hence, the MNC pharma has currently stopped the distribution of this anti-rabbies vaccine as well. We believe that the loss of distribution rights for Rabipur as well as Verorab might have a significant impact on the companys revenues going forward.

17th August 2010

3.

Parent Company Sanofi-Aventis S.A

Sanofi-Aventis S.A. is one of the leading global healthcare companies, engaged in research, development, manufacture & marketing of healthcare products, headquartered in Paris, France. It ranks among the top four pharmaceuticals companies worldwide, with commercial presence in more than 100 countries across the globe, employing around 17,000 scientists & over 100,000 employees. For the year ended December 2009, Sanofi-Aventis clocked a turnover of EURO 29,306 Mn. (up 6.3% over 2008) & Net Income of EURO 8,471 Mn. (up 12.8% over 2008). Sanofi-Aventis, along with its 100% subsidiary, Hoechst GmBH, holds 60.4% paid-up capital of Aventis Pharma Ltd. Sanofi-Aventis has its business diversified into Pharmaceuticals including prescription drugs, OTC & generics; Vaccines & Animal Health. Pharmaceuticals Within the pharmaceutical space, the company operates in six therapeutic areas of Thrombosis, Cardiovascular Diseases, Diabetes, Oncology, Central Nervous System & Internal Medicine. The Sanofi-Aventis portfolio of marketed products includes several medicines that are world leaders in their respective classes. For the year 2009, Net Sales from pharmaceutical business stood at EURO 25,823 Mn., up 3.7% over 2008. Vaccines Sanofi-Pasteur, the fully integrated vaccines division of the SanofiAventis group, is the world leader in the vaccines industry, offering the broadest range of vaccines in five areas: Influenza, Pediatric combinations & Poliomyelitis vaccines, Adult & Adolescent booster vaccines, Meningitis as well as Travel, Endemic & Measles, Mumps, Rubella (MMR) vaccines. For 2009, the vaccines business achieved Net Sales of EURO 3,483 Mn., 19.2% higher over 2008. Animal Health Within the animal healthcare space, Sanofi-Aventis has a 50:50 JV with Merck & Co. Inc. US, named Merial. Merial is one of the worlds leading animal health companies dedicated to the research, development, manufacture & delivery of innovative pharmaceuticals & vaccines used by veterinarians, farmers & pet owners. Non-consolidated 2009 sales of Merial stood at USD 2,554 Mn., 0.4% higher over 2008. Sanofi-Aventis presence is well-balanced between traditional (Europe, North America and Japan) and emerging markets & is the established leader in emerging markets, holding top positions in the main countries. The companys extensive portfolio of prescription medicines, vaccines, consumer healthcare (OTC) products & generics, along with a balanced presence in both mature & emerging markets strengthens its global position & standing. Segmental Sales Mix
9%

Geographical Sales Mix

15%

12% 5% 42% 6%

79% Pharmaceuticals Vaccines Animal Health

32% Europe USA Japan Asia ROW

Source: Sanofi-Aventis Inc., AKS Research

Source: Sanofi-Aventis Inc., AKS Research

17th August 2010

Research & Development Sanofi-Aventis currently possesses one of the richest, diversified & most innovative portfolios in the industry. With more than 20 research centres on three continents, Sanofi-Aventis coordinates its Research and Development activities on a worldwide basis. The companys annual R&D budget exceeds EURO 4 Bn. and ranks among the three largest budgets of the global pharmaceutical industry. For the year ended December 2009, the Group invested EURO 4,583 Mn. (15.6% of Revenues) in Research & Development. Sanofi-Aventis currently has 52 projects in clinical development, of which 14% are biotechnology products & 35% vaccines. Here is a glimpse of the companys R&D pipeline:

Product Pipeline Summary Therapeutic Area Cardiovascular Diseases Metabolic Disorders Oncology Central Nervous System Thrombosis Internal Medicine Ophtalmology Vaccines Total 2 1 4 17 2 1 7 15 4 13 3 4 2 6 2 3 Phase I Phase II 1 1 Phase III 1 1 4 1 2 1 Approval Total 2 4 11 6 2 4 2 18

Source: Sanofi-Aventis Inc., AKS Research

This rich & diversified product pipeline will help the Indian subsidiary Aventis Pharma Ltd. in the long run. Although, clarity on launch of these drugs will emerge only over a period of time, we believe that some of these products could be relevant for the Indian markets and are likely to be launched in India with a time-lag. Recent Acquisitions Sanofi-Aventis has been growing organically as well as inorganically in the recent past. Since the beginning of 2009, the company has strengthened its position with the following acquisitions:

Zentiva N.V., Europe, which will provide a platform for growth in branded generics in Central & Eastern Europe, Turkey & Russia. Kendrick, Mexico & Medley, Brazil, both again in branded generics. Based on pro-forma 2008 sales, these three acquisitions would make SanofiAventis group the 11th global generics player & increase its Net Sales from Generics business to EURO 1.2 Bn. from EURO 349 Mn. in 2008. BiPar Sciences Inc., a privately held US biopharmaceutical company, engaged in development of novel tumor-selective approaches for treatment of different types of cancers. Shantha Biotechnics - Sanofi-Pasteur, the fully integrated vaccines division of the Sanofi-Aventis group, acquired a majority stake in this Hyderabad based vaccine company, valuing the unlisted Indian company at EURO 550 Mn. (or Rs. 3,740 crores). Shantha would provide Sanofi Pasteur with a portfolio of new vaccines in development which complement Sanofi Pasteurs current vaccines basket, & help it position the company to accelerate its growth in strategically important emerging markets.

17th August 2010

4. FELLOW SUBSIDIARY Sanofi-Synthelabo (India) Ltd. In India, the parent company Sanofi-Aventis operates through two entities Aventis Pharma Ltd. & Sanofi-Synthelabo (India) Ltd. APL is a 60.4% subsidiary of Sanofi-Aventis, whereas Sanofi-Synthelabo (India) Ltd. is a 100% unlisted subsidiary of the parent company. Sanofi-Synthelabo (India) Ltd. was incorporated in June 1996 under the name Sanofi Torrent (India) Pvt. Ltd. Its name was changed to Sanofi-Synthelabo (India) Ltd. in May 2002. The company currently has around 275 employees in India & operates in co-ordination with Aventis Pharma Ltd. It operates as a pharmaceutical company in India, specializing in various therapeutic groups, such as Thrombosis, Cardiovascular & Neurology. The main products of the company are

Sanofi-Synthelabo (India) Ltd. - Complete Product List Therapeutic Area

Thrombosis Cardiovascular Diseases

Product Name
Plavix (clopidogrel bisulfate) Cordarone (amiodarone hydrochloride) Adenocor IV (adenosine) Primacor IV (milrinone lactate)

Central Nervous System

Depakote (divalproex sodium Delayed Release) Depakote XR (divalproex sodium Extended Release) Stilnoct (zolpidem tartrate) Valparin Chrono (sodium valproate, Valporic acid) Valparin Syrup (sodium valproate) Vinlep (oxcarbazepine)

Internal Medicine

Enterogermina Oral Suspension (bacillus calusii spores) Enterogermina Capsules (bacillus calusii spores) Lactacyd (lactic acid & lactoserum) Myoril (thiocolchicoside) Myoril Plus (thiocolchicoside)

Source: Company, AKS Research

The company is mainly engaged in the marketing of the parents products in India, especially in the Cardiovascular (CVS) & Central Nervous System (CNS) segments. However, there seems to be very little overlap (except in the CVS segment) between APLs & Sanofi-Synthelabos product portfolio in the Indian market.

10

17th August 2010

5.

HEALTHY FINANCIALS

Aventis Pharma Ltd. has consistently maintained healthy financials over the years. The MNC pharma has a completely debt-free status & has huge cash reserves on its Balance Sheet. As of December 2009, APL had Cash balance of Rs. 5,860 Mn., implying pure cash of Rs. 254.5 per share. Looking at the free cash flow generating capacity of APL, we expect Cash balances to increase to Rs. 7,648 Mn. by December 2011E (Rs. 332 per share). Such ample cash balances would be helpful to the company while looking at organic as well as inorganic growth opportunities & also to maintain its steady dividend payouts. APL has changed its dividend policy from an absolute amount of Rs. 16 per share till CY2008, to a dividend payout ratio of 30% annually from CY2009. We believe this to be a positive step in favor of the shareholders. EPS Cash EPS DPS
100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2007 2008 2009 2010E 2011E 0.0 10.0 5.0 15.0 25.0 20.0 30.0

EPS
Source: AKS Research

Cash EPS

DPS

11

17th August 2010

Risks & Concerns

1. New Pharmaceutical Policy 2006 The new National Pharmaceutical Policy 2006 remains a big concern for the pharmaceutical industry as a whole. This new policy proposes to bring all 354 medicines on the National List of Essential Medicines under the DPCO net, from 74 drugs currently. The policy is being considered by a Group of Ministers (GoM) which was constituted in January 2007. There is still no clarity on this front. However, the policy has found stiff competition from the pharmaceutical industry, since it would have a significant effect on the fortunes of the industry players, impacting their top-lines going forward. APLs exposure to DPCO is currently around 33% of its revenues. We believe that if the New Pharmaceutical Policy 2006 comes into effect, it can negatively impact the companys topline & margins going forward. 2. Loss of distribution rights

The anti-rabbies vaccine Rabipur was one of the top selling products for Aventis Pharma Ltd. It had strong growth year-on-year & made significant contribution to the companys top-line. However, the company has stopped the distribution of Rabipur effective 19th February 2009, due to the non-renewal of the agreement with the JV company. Aventis has also been restrained to market & distribute another anti-rabbies vaccine Verorab under an appeal from Novartis Vaccines & Diagnostics Inc. We believe that the loss of distribution rights for Rabipur & Verorab would have a significant impact on APLs sales turnover & profitability going forward. 3. Competition from Generics

Aventis Pharmas global blockbuster basal insulin brand Lantus is facing competition from the generic players of the pharmaceutical market. A generic version of this brand has been launched in the market at a lower price, which could have negative effects on the products sales, thereby impacting the overall turnover of the company. 4. Fully-owned subsidiary

As discussed earlier, the parent company - Sanofi-Aventis, has a fully owned subsidiary named Sanofi-Synthelabo (India) Ltd. operating alongside Aventis Pharma in the Indian domestic pharma market. Even though, there seems to be very little overlap in the product portfolios of the two Indian subsidiaries, we believe that the presence of a fully-owned subsidiary can be a cause of concern for the listed entity Aventis Pharma.

12

17th August 2010

Valuation & Recommendation

Aventis Pharma Ltd. has been one of the larger MNC pharma companies operating in the Indian domestic markets. The company has been growing steadily over the years achieving an 8% CAGR top-line growth over CY04-08 period. Also focus on domestic & export markets, helps the company maintain its growth momentum. The company has many brands that are market leaders in their respective segments & have consistently grown at double digits year after year. Besides, the global parent company has been a strong support for the Indian subsidiary in terms of new product introductions in the domestic market. APLs continued focus on brand building in the chronic segment, powerful marketing network & close alignment with the parent company works in its favor. Steady operating performance with steadily increasing cash flows, debt free status & steady dividend payouts add to the positives of the stock. The company has recently revised its dividend policy, distributing 30% of annual earnings as dividends, which we believe to be positive for the shareholders. The company had pure cash balance of Rs. 254.5 per share as of December 2009 & we expect this to increase to around Rs. 285 per share for CY10E. At CMP of Rs. 1,850.0, the scrip trades at 25.2x CY10E & 22.1x CY11E earnings of Rs. 73.5 & Rs. 83.7 respectively. We initiate coverage on the stock with an ACCUMULATE rating with a price target of Rs. 2,094.0, valuing the MNC at 25x CY11E earnings. PE Band
2500 2000 1500 1000 500 0

30x 26x 22x 18x 14x

Source: AKS Research

13

Ju l3 1 20 Ja 10 n 31 20 10 Ju l3 1 20 Ja 09 n 31 20 09 Ju l3 1 20 Ja 08 n 31 20 08 Ju l3 1 20 Ja 07 n 31 20 07 Ju l3 1 20 Ja 06 n 31 20 06
17th August 2010

Quarterly Performance
For the second quarter ended 30th June 2010, Aventis Pharma Ltd. reported a decent 8.6% jump in its topline over the same period last year. Domestic Sales increased by more than 15% Y-o-Y to Rs. 2,177.0 Mn. from Rs. 1,888.0 Mn. for the year ago period. However, with significant increases in Staff Costs & Other Expenditures, the Operating Profit dipped by almost 18% Y-o-Y to Rs. 435.0 Mn. APL saw a sharp decline of more than 500 bps in its OPMs, that stood at 16% for Q2CY10. This led to a 10% Y-o-Y decline in Reported PAT levels from Rs. 471.0 Mn. in Q2CY09 to Rs. 424.0 Mn. in Q2CY10. EPS for the quarter stood at Rs. 18.43 vis-vis 20.48 for the same period last year. On a sequential basis, the MNC pharma reported an 8% increase in Net Revenues from Rs. 2,514.0 Mn. in Q1CY10 to Rs. 2,715.0 Mn. in Q2CY10. Contribution of Domestic Sales to Total Revenues increased from 78.4% to 80.2% on a Q-o-Q basis. Operating profits increased by 19.5% Q-o-Q & OPMs also improved by almost 155 bps. With a 12% increase in Other Income, Aventis Pharma reported a Q-o-Q jump of 17.5% in its bottomline. The company declared an Interim Dividend of Rs. 4 per share for the first six months of 2010. Quarterly Financials
Quarterly Statement YE Dec. (Rs. Mn.) Net Revenues Cost of Materials Gross Profit Staff Costs Other Expenses Total Expenditure Operating Profit OPM (%) Other Income EBITDA Depreciation EBIT Interest PBT Tax Current Tax Fringe Benefit Tax Deferred Tax PAT Equity Capital EPS Q2CY10 2,715.0 1,368.0 1,347.0 408.0 504.0 912.0 435.0 16.0% 253.0 688.0 47.0 641.0 0.0 641.0 217.0 217.0 0.0 0.0 424.0 230.0 18.43 Q1CY10 2,514.0 1,261.0 1,253.0 376.0 513.0 889.0 364.0 14.5% 226.0 590.0 43.0 547.0 0.0 547.0 186.0 186.0 0.0 0.0 361.0 230.0 15.70 17.5% 17.5% 17.2% 16.7% 16.7% Q-Q(%) 8.0% 8.5% 7.5% 8.5% -1.8% 2.6% 19.5% 154.3 11.9% 16.6% 9.3% 17.2% Q2CY09 2,499.0 1,197.0 1,302.0 352.0 421.0 773.0 529.0 21.2% 249.0 778.0 43.0 735.0 0.0 735.0 264.0 264.0 0.0 0.0 471.0 230.0 20.48 -10.0% -10.0% -12.8% -17.8% -17.8% Y-Y(%) 8.6% 14.3% 3.5% 15.9% 19.7% 18.0% -17.8% (514.6) 1.6% -11.6% 9.3% -12.8% 6MCY10 5,229.0 2,629.0 2,600.0 784.0 1,017.0 1,801.0 799.0 15.3% 479.0 1,278.0 90.0 1,188.0 0.0 1,188.0 403.0 403.0 0.0 0.0 785.0 230.0 34.13 6MCY09 4,788.0 2,307.0 2,481.0 678.0 884.0 1,562.0 919.0 19.2% 569.0 1,488.0 85.0 1,403.0 0.0 1,403.0 527.0 527.0 0.0 0.0 876.0 230.0 38.09 -10.4% -10.4% -15.3% -23.5% -23.5% Y-Y(%) 9.2% 14.0% 4.8% 15.6% 15.0% 15.3% -13.1% (391.4) -15.8% -14.1% 5.9% -15.3%

Ratio Analysis Profitability

YE Dec. OPM (%) EBITDA (%) EBIT (%) PAT (%) Q2CY10 16.0% 25.3% 23.6% 15.6% Q1CY10 14.5% 23.5% 21.8% 14.4% Q-Q(%) 154.3 187.2 185.1 125.7 Q2CY09 21.2% 31.1% 29.4% 18.8% Y-Y(%) (514.6) (579.2) (580.2) (323.1) 6MCY10 15.3% 24.4% 22.7% 15.0% 6MCY09 19.2% 31.1% 29.3% 18.3% Y-Y(%) (391.4) (663.7) (658.3) (328.3)

14

17th August 2010

Detailed Financials:
Earnings Statement Particulars (YE Dec. Rs. Mn.) Total Revenues - Growth (%) Total Expenditure Operating Profit Forex Gain/(Loss) Other Income EBITDA Depreciation EBIT Interest PBT Tax PAT Before EI - Growth (%) Extra-ordinary Items PAT CY07 8,735.4 -1.2% 7,060.0 1,675.4 1.7 737.8 2,414.9 184.5 2,230.3 1.9 2,228.4 784.2 1,444.2 -14.7% 0.0 1,444.2 CY08 9,832.7 12.6% 7,977.4 1,855.4 5.7 920.0 2,781.0 182.1 2,598.9 3.4 2,595.5 933.5 1,662.0 15.1% 0.0 1,662.0 CY09 9,744.1 -0.9% 8,266.6 1,477.5 10.0 1,101.3 2,588.8 173.4 2,415.3 0.7 2,414.6 840.4 1,574.1 -5.3% 0.0 1,574.1 CY10E 10,460.8 7.4% 8,865.6 1,595.2 0.0 1,150.7 2,745.9 180.9 2,565.0 0.0 2,565.0 872.1 1,692.9 7.5% 0.0 1,692.9 CY11E 11,297.6 8.0% 9,483.6 1,814.0 0.0 1,299.2 3,113.3 190.9 2,922.4 0.0 2,922.4 993.6 1,928.8 13.9% 0.0 1,928.8

Balance Sheet Particulars (YE Dec. Rs. Mn.) Equity Capital Reserves Shareholders Funds Borrowed Funds Deferred Tax Liability Total Liabilities Fixed Assets Investments Current Assets Inventory Sundry Debtors Loans & Advances Cash & Bank Balance Current Liabilities Sundry Creditors Provisions Net Current Assets Miscellaneous Expenditure Total Assets 6,942.4 8,137.9 9,172.2 10,271.0 11,522.8 1,145.7 953.5 5,439.4 1,384.4 977.9 6,595.2 1,581.7 1,153.7 7,400.0 1,433.0 1,146.4 8,479.6 1,547.6 1,238.1 9,722.3 1,808.0 575.1 1,249.4 3,906.2 1,725.5 895.0 1,363.2 4,973.7 2,311.4 527.4 1,437.2 5,859.5 2,292.8 630.5 1,576.3 6,559.4 2,476.2 681.0 1,702.4 7,648.5 CY07 230.3 6,838.2 7,068.5 0.0 (126.2) 6,942.4 1,449.9 53.1 CY08 230.3 8,060.7 8,291.0 0.0 (153.2) 8,137.9 1,490.8 51.9 CY09 230.3 9,087.6 9,317.9 0.0 (145.7) 9,172.2 1,720.4 51.9 CY10E 230.3 10,186.4 10,416.7 0.0 (145.7) 10,271.0 1,739.5 51.9 CY11E 230.3 11,438.2 11,668.5 0.0 (145.7) 11,522.8 1,748.6 51.9

15

17th August 2010

Ratio Analysis Particulars OPM (%) EBITDA (%) PBIT (%) PAT (%) Interest Cover (x) EPS (Rs.) P/E (x) P/BV (x) BVPS (Rs.) Market Cap (Rs. Mn.) M Cap/Sales (x) EV (Rs. Mn.) EV/EBITDA (x) EV/Sales (x) ROCE (%) RONW (%) Debt/Equity Ratio (x) Inventory T/o Days Debtors T/o Days Advances T/o Days Creditors T/o Days Working Cap T/o Days Fixed Assets T/o (Gross) DPS (Rs.) Dividend Payout (%) Dividend Yield (%) Cash Flow Particulars (YE Dec. Rs. Mn.) Opening Cash & Bank Profit After Tax Investment Income Interest Paid Miscellaneous Exp W/Off Depreciation Deferred Taxation Others Change in Working Cap CF - Operating Activities Change in Fixed Assets Change in Investments Investment Income CF - Investing Activities Increase in Equity Changes in Borrowings Interest Paid Dividend Paid CF - Financing Activities Net Change in Cash Closing Cash & Bank Balance CY07 4,000.4 1,444.2 (737.8) 1.9 0.0 184.5 14.3 (24.5) (1,091.9) (209.2) (163.2) 0.0 737.8 574.7 (26.7) 0.0 (1.9) (431.1) (459.7) (94.2) 3,906.2 CY08 3,906.2 1,662.0 (920.0) 3.4 0.0 182.1 (27.0) (87.6) (88.3) 724.7 (135.5) 1.2 920.0 785.7 (8.4) 0.0 (3.4) (431.1) (442.9) 1,067.6 4,973.7 CY09 4,973.7 1,574.1 (1,101.3) 0.7 0.0 173.4 7.4 (57.5) 81.0 678.0 (345.5) 0.0 1,101.3 755.8 (8.4) 0.0 (0.7) (538.9) (548.0) 885.8 5,859.5 CY10E 5,859.5 1,692.9 (1,150.7) 0.0 0.0 180.9 0.0 0.0 (379.7) 343.4 (200.0) 0.0 1,150.7 950.7 0.0 0.0 0.0 (594.2) (594.2) 699.9 6,559.4 CY11E 6,559.4 1,928.8 (1,299.2) 0.0 0.0 190.9 0.0 0.0 (153.6) 666.8 (200.0) 0.0 1,299.2 1,099.2 0.0 0.0 0.0 (676.9) (676.9) 1,089.1 7,648.5 CY07 19.2% 27.6% 25.5% 16.5% 1,159.2 62.7 29.5 6.0 306.9 42,606.7 4.9 38,700.5 16.0 4.4 31.6% 20.4% 0.0 75.5 24.0 52.2 47.9 227.3 2.9 16.0 25.5% 0.9% CY08 18.9% 28.3% 26.4% 16.9% 763.2 72.2 25.6 5.1 360.0 42,606.7 4.3 37,632.9 13.5 3.8 31.3% 20.0% 0.0 64.1 33.2 50.6 51.4 244.8 3.1 16.0 22.2% 0.9% CY09 15.2% 26.6% 24.8% 16.2% 3,250.8 68.4 27.1 4.6 404.6 42,606.7 4.4 36,747.1 14.2 3.8 25.9% 16.9% 0.0 86.6 19.8 53.8 59.2 277.2 2.9 20.0 29.3% 1.1% CY10E 15.2% 26.2% 24.5% 16.2% 73.5 25.2 4.1 452.3 42,606.7 4.1 36,047.2 13.1 3.4 24.6% 16.3% 0.0 80.0 22.0 55.0 50.0 295.9 2.9 22.1 30.0% 1.2% CY11E 16.1% 27.6% 25.9% 17.1% 83.7 22.1 3.7 506.7 42,606.7 3.8 34,958.2 11.2 3.1 25.0% 16.5% 0.0 80.0 22.0 55.0 50.0 314.1 3.0 25.1 30.0% 1.3%

Hiren Samani Research Analyst Email:- hiren.samani@akgroup.co.in Tel:- 91-22 67544729

16

17th August 2010

Disclaimer
This document has been prepared by A. K. STOCKMART (P) LTD. This document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to. No portion of this document shall be reproduced, reprinted, duplicated, sold or redistributed. Also, this publication may not be distributed to the public media or quoted or used by the public media without the express written consent of A. K. STOCKMART (P) LTD. Kindly note this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. A. K. STOCKMART (P) LTD. will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data. Opinion expressed is our current opinion as of the date appearing on this material only. While we would endeavor to update the information herein on a reasonable basis, A. K. STOCKMART (P) LTD., its holdings and associated companies, their directors and employees (A. K. STOCKMART (P) LTD. and affiliates) are under no obligation to update or keep the information updated. Also, there may be regulatory, compliance, or other reasons that may prevent A. K. STOCKMART (P) LTD. and affiliates from doing so. We do not warrant the accuracy, adequacy or completeness of this information and materials and expressly disclaims liability for any errors or omissions or delays in this information and materials. Technical analysis is generally based on the study of trading volumes and price movements in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying securities discussed in this report and may offer and investment opinion that conflicts with the recommendations or opinions on underlying securities issued by fundamental equity research analyst of any of its associates. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for investment decisions. Past performance is not necessarily indicative of future returns. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at as independent evaluation of and investment in the financial instruments referred to in this document (including merits and risks involved), and should consult its own advisors to determine the merits and risks of such investments. The investments discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Affiliates of A. K. STOCKMART (P) LTD. may have issued other reports that are inconsistent with and reach different conclusions from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject A. K. STOCKMART (P) LTD. and affiliates to any registration or licensing requirement within such jurisdiction. The financial instruments described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Person in whose possession this document may come are required to inform them selves of and to observe such restriction. A. K. STOCKMART (P) LTD. & affiliates may have used this information set forth before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the financial instruments or related securities. A. K. STOCKMART (P) LTD. & affiliates may from time to time, have long or short positions in, or buy or sell the securities thereof, of the company(ies) mentioned herein or be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as advisor or lender/ borrower to such company(ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. A. K. STOCKMART (P) LTD. may from time to time solicit from, or perform investment banking, or other service for, any company mentioned herein. Without limiting any of the foregoing, in no event shall A. K. STOCKMART (P) LTD. or any of its affiliates or any third party involved in, or rated to, computing or compiling the information have any liability for any damages of any kind. Any comment or statements made herein are those of the analysts and do not necessarily those of A. K. STOCKMART (P) LTD.

17

A.K. Stockmart Pvt.Ltd.:- 30-39, Free Press House, 3rd Floor, Free Press Journal Marg, 215, Nariman Point, Mumbai 400 021
Tel. No: (Direct) 022 67546517 (Fax) 022 66360977;

17th August 2010