3QCY2011 Result Update | Pharmaceutical

November 16, 2011

Aventis Pharma
Performance Highlights

SELL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 5,400 0.2 2,424/1,710 2422 10 16,776 5,030 AVPH.BO AVEN@IN
303 36 44 51 3 2 15 8 276 31 43 47 13.5 17.9 18.4 15.9

`2,345 `1,937
12 Months

Y/E Dec (` cr) Net sales Other income Operating profit Net profit

3QCY2011 2QCY2011 % chg (qoq) 3QCY2010 % chg (yoy) 313 36.9 50 55

Source: Company, Angel Research

For 3QCY2011, Aventis Pharma (Aventis) reported in-line results at the top-line and net profit fronts, led by growth across the domestic and exports market. Domestic sales grew by 11.2% yoy, contributing around 82% to the companys total revenue; the remaining contribution came in from exports, which grew strongly by 26.6% in 3QCY2011. Given the valuations, we recommend a Sell rating on the stock. Revenue growth led by the exports segment: Aventis net sales grew by 13.5% yoy to `313cr for 3QCY2011, in-line with our estimate of `307cr, backed by 11.2% yoy growth in the domestic segment. Export sales grew by 26.6% to `58.8cr. The company reported gross margin of 48.6%, below our estimate of 50.6%. OPM came in at 16.1%, higher than our estimate of 15.0%. Net profit came in at `55cr, up 15.9% yoy, lower than our estimate of `51cr. Outlook and valuation: We expect net sales to post a 13.6% CAGR to `1,401cr and EPS to register a 15.6% CAGR to `89.7cr over CY201012E. At current levels, the stock is trading at 27.4x and 26.1x CY2011E and CY2012E earnings, respectively. We recommend Sell on the stock with a target price of `1,937.
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 CY2009 CY2010 CY2011E CY2012E

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 60.4 23.6 10.3 5.7

Abs. (%) Sensex Aventis

3m 0.3 14.5

1yr (15.6)

3yr 78.7

23.4 196.8

974 (0.9) 157.4 (5.3) 68.4 15.2 34.3 17.9 14.8 5.8 4.9 32.6

1,085 11.3 155.0 (1.5) 67.3 13.2 34.8 15.9 12.6 5.3 4.4 33.1

1,224 12.8 197.0 27.1 85.5 14.9 27.4 18.3 14.8 4.7 3.9 26.0

1,401 14.4 206.4 4.8 89.7 15.3 26.1 17.1 15.7 4.2 3.3 21.6 Sarabjit Kour Nangra
+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Aventis Pharma | 3QCY2011 Result Update

Exhibit 1: 3QCY2011 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

3QCY2011 313 37 350 50 16.1 6 81 81 26 55 23.8

2QCY2011 303 36 339 44 14.5 5 75 75 24 51 12.7

% chg (qoq) 3.3 2.2 3.2 14.9

3QCY2010 276 31 307 43 15.4 -

% chg (yoy) 13.5 17.9 13.9 18.4

9MCY2011 892 111 1,003 138 15.4 -

9MCY2010 799 79 878 122 15.3 14 187 187 62 126 52.3

% chg yoy 11.7 39.8 14.2 12.5

13.0 8.9 8.9 10.5 8.2

5 69 69 21 47 20.6

15.1 18.5 18.5 24.1 15.9

17 231 231 75 155 67.4

18.2 23.6 23.6 22.4 23.3

Exhibit 2: 3QCY2011 Actual vs. Angel estimates

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

Actual 313 37 50 26 55

Estimates 307 36 46 24 51

Variation (%) 1.7 1.7 9.1 10.7 8.1

Revenue growth led by the domestic segment: Aventis net sales grew by 13.5%

yoy to `313cr for 3QCY2011, in-line with our estimate of `307cr, backed by 11.2% growth in the domestic segment. Export sales grew by 26.6% to `58.8cr during the quarter. The company incurred planned expenditure in two of its critical projects Prayas and entry into the OTC market. These projects are slated to be the future growth drivers for the company.

November 16, 2011

Aventis Pharma | 3QCY2011 Result Update

Exhibit 3: Sales trend

300 250 200 150
(` cr)

197

218

232

224

222

244

258

30 20 10 0 (10)

100 50 0

54

54

44

63

54

59

55.2

1QCY2010

2QCY2010

3QCY2010

4QCY2010

1QCY2011

2QCY2011

(50) (100)

3QCY2011

(20) (30)

Domestic

Export

Domestic Growth (YoY)

Export Growth (YoY)

Source: Company, Angel Research

OPM above estimates at 16.1%: For 3QCY2011, the company reported gross margin of 48.6%, below our estimate of 50.6%. OPM came in at 16.1%, higher than our estimate of 15.0% for the quarter. This was mainly on the back of the lower employee expenses (up 5.3% yoy) and a dip in other expenses (down 2.3% yoy), respectively, during the quarter.

Exhibit 4: OPM trend

18.0 15.0 12.0 9.0 14.5 16.0 15.4 15.7 14.5 16.1

(%)

6.0 3.0 0.0

7.2

1QCY2010

2QCY2010

3QCY2010

4QCY2010

1QCY2011

2QCY2011

Source: Company, Angel Research

Bottom line above estimates: For the quarter, Aventis reported net profit of `55cr, up 15.9% yoy, and higher than our estimate of `51cr, led by higher-than-expected OPM during the quarter.

November 16, 2011

3QCY2011

Aventis Pharma | 3QCY2011 Result Update

Exhibit 5: Net profit trend

60 50 40 30 20 10 0 36 29 42 47 51 50 55

3Q CY2010

4Q CY2010

1QCY2010

2QCY2010

1QCY2011

2QCY2011

Source: Company, Angel Research

Recommendation rationale
Focus on top-line growth: Aventis recorded revenue CAGR of 5.3% to `1,085cr over CY200610 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 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. Aventis also plans to launch CVS and vaccine products in the domestic market post the acquisition of Shantha Biotech by its parent company. We expect the companys net sales to log a 13.6% CAGR over CY201012E, majorly driven by its domestic formulation sales. Valuation: Aventis has a strong balance sheet with cash of `655cr (~14% of market cap, as of CY2010), which could be used for future acquisitions or higher dividend payouts. We expect net sales to post a 13.6% CAGR to `1,401cr and EPS to register a 15.6% CAGR to `89.7cr over CY201012E. At current levels, the stock is trading at 27.4x and 26.1x CY2011E and CY2012E earnings, respectively. We recommend Sell on the stock with a target price of `1,937.

Exhibit 6: Key assumptions

CY2011E Net sales growth (%) Domestic sales growth (%) Export sales growth (%) Growth in employee expenses (%) Operating margins (%) Net profit growth (%) Capex (` cr)
Source: Company, Angel Research

CY2012E 14.4 15.0 12.0 15.0 15.3 5.1 21.0

12.8 14.0 8.0 16.0 14.9 27.1 26.6

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3QCY2011

Aventis Pharma | 3QCY2011 Result Update

Exhibit 7: One-year forward P/E

2,500 2,000 1,500 1,000 500 -

(`)

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Jul-07

Jul-08

Jul-09

Jul-10

Oct-07

Oct-08

Oct-09

Oct-10

Jan-07

Jan-08

10x
Source: Company, Angel Research

15x

Jan-09

20x

Jan-10

25x

Exhibit 8: Recommendation summary

Company Alembic Pharmaceuticals Aurobindo Pharma# Aventis* Cadila Healthcare Cipla Dr. Reddy's Dishman Pharma Glaxo* Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy* Reco Buy Buy Sell Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy CMP (`) 42 92 2,345 723 310 1,614 43 1,982 399 250 456 153 473 Tgt. price Upside (`) 77 166 1,937 965 369 1,920 68 555 358 593 270 577 % PE (x) 82.5 80.5 (17.4) 26.8 19.0 19.0 59.3 39.0 34.0 30.1 76.5 22.2 5.5 6.7 26.1 15.8 16.8 16.8 3.8 22.8 7.2 9.7 15.4 4.1 9.0 FY2013E EV/Sales (x) 0.7 0.8 3.3 2.4 3.1 2.9 0.9 5.2 0.9 1.5 2.5 1.5 1.7 EV/EBITDA (x) 4.9 5.8 21.6 12.8 14.4 11.6 5.0 14.5 5.9 6.9 12.8 6.9 7.3 FY11-13E CAGR in EPS (%) 30.6 9.9 15.4 19.4 23.8 22.7 3.5 14.6 15.6 14.8 24.0 29.6 22.0 FY2013E RoCE (%) RoE (%) 26.6 10.2 15.7 25.2 16.6 17.7 7.1 41.0 14.2 23.3 23.9 11.7 26.8 37.0 15.1 17.1 31.1 18.2 25.2 8.8 30.7 16.9 24.9 30.8 23.4 25.9

Source: Company, Angel Research; Note: * December year ending;#CAGR in EPS is based on recurring EPS

November 16, 2011

Jan-11

Jul-11

Aventis Pharma | 3QCY2011 Result Update

Profit and loss statement

Y/E Dec. (` cr) 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 & amortization EBIT % chg (% of Net sales) Interest & other charges Other income (% of PBT) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Extraordinary items PAT after MI (reported) ADJ. PAT % chg (% of Net sales) Basic EPS (`) Fully Diluted EPS (`) % chg 144 144 (14.7) 16.5 63 63 (14.7) 166 166 15.1 16.9 72 72 15.1 157 157 (5.3) 16.2 68 68 (5.2) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E 874 23 896 1.2 705 423 17 104 162 168 (23.7) 19.3 19 149 (26.5) 17.1 0.2 51 23.0 223 (10.8) 222.8 78.4 35.2 144 983 36 1,019 13.7 798 476 41 119 161 186 10.2 18.9 18 167 12.2 17.0 0.3 57 21.8 260 16.5 260 93.3 36.0 166 974 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 1,085 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) 1,224 58 1,282 12.1 1,042 569 61 189 222 182 27.0 14.9 22 160 30.2 13.0 62 22.1 280 19.9 280 82.6 29.6 197 197 197 27.1 16.1 86 86 27.1 1,401 50 1,450 13.1 1,187 644 70 218 254 214 17.7 15.3 24 190 19.1 13.6 59 19.7 299 6.9 299 92.4 30.9 206 206 206 4.8 14.7 90 90 4.8

November 16, 2011

Aventis Pharma | 3QCY2011 Result Update

Balance sheet
Y/E Dec. (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Total loans Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital Work-in-Progress Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Deferred tax assets Total assets 304 169 136 9 5 754 391 125 238 210 544 13 707 321 178 143 6 5.2 896 497 136 262 236 660 15 829 335 190 145 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 1,014 396 227 170 13 0.4 1,149 677 115 357 207 942 17 1,142 417 250 167 13 0.4 1,300 780 132 389 225 1,076 20 1,277 23 684 707 707 23 806 829 829 23 909 932 932 23 991 1,014 1,014 23 1,119 1,142 1,142 23 1,253 1,277 1,277 CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E

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Aventis Pharma | 3QCY2011 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 CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E 223 18 (4) 23 97 117 (18) 23 5 (84) (33) (117) 5 386 391 260 18 (21) 36 98 123 (24) 36 12 (43) 15 (28) 107 391 497 241 17 4 52 92 118 (41) 52 11 (43) 2 (41) 88 497 586 234 21 (10) 59 79 107 (27) (5) 59 27 (55) (9) (64) 69 586 655 280 22 (101) 58 89 53 (21) 58 37 (69) (69) 21 655 677 299 24 (31) 50 96 147 (21) 50 29 (72) (0) (72) 103 677 780

November 16, 2011

Aventis Pharma | 3QCY2011 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets 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) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA (0.6) (2.3) (0.6) (2.7) (0.6) (4.0) (0.6) (4.6) (0.6) (3.7) (0.6) (3.6) 3.0 69 26 47 43 3.3 63 26 46 56 3.1 72 25 49 56 3.2 75 18 47 51 3.3 73 20 41 61 3.6 70 24 36 71 22.7 57.8 22.0 21.8 52.9 21.6 14.8 40.5 17.9 12.6 36.9 15.9 14.8 40.1 18.3 15.7 40.7 17.1 62.7 62.7 71.1 27.6 306.9 72.2 72.2 80.1 16.0 360.0 68.4 68.4 75.9 20.0 404.6 67.3 67.3 109.1 55.0 440.3 85.5 85.5 95.2 25.7 495.9 89.7 89.7 100.0 26.9 554.5 37.4 33.0 7.6 1.2 5.7 29.8 7.1 32.5 29.3 6.5 0.7 5.0 26.4 5.9 34.3 30.9 5.8 0.9 4.9 32.6 5.2 34.8 21.5 5.3 2.3 4.4 33.1 4.7 27.4 24.6 4.7 1.1 3.9 26.0 4.1 26.1 23.5 4.2 1.1 3.3 21.6 3.6 CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E

November 16, 2011

Aventis Pharma | 3QCY2011 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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

Aventis Pharma 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%)

November 16, 2011

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