4QCY2011 Result Update | Pharmaceutical

March 5, 2012

Aventis Pharma
Performance Highlights

NEUTRAL
CMP Target Price
% chg (qoq) 8 (22) (22) (34) 4QCY2010 287 110 21 29 % chg (yoy) 17.9 (73.9) 90.5 23.4

`2,220 -

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

4QCY2011 338 28.7 39 36

3QCY2011 313 36.9 50 55

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 5,010 0.5 2430/1777 2019.492 10 17,363 5,280 AVPH.BO AVEN@IN

Source: Company, Angel Research

For 4QCY2011, Aventis Pharma (Aventis) reported in-line results at the top-line and net profit fronts, led by growth across the domestic market. Domestic sales grew by 24.5% yoy, contributing around 83% to the companys total revenue. The company incurred planned expenditure in two of its critical projects Prayas, a project to deliver high-quality, low-cost healthcare to the rural population; and entry into the over-the-counter (OTC) market. These projects are slated to be the future growth drivers for the company. Given the valuations, we recommend a neutral on the stock. Revenue growth led by the domestic segment: Aventis net sales grew by 24.5% yoy to `338cr for 4CY2011, in-line with our estimate of `332cr, backed by 24.5% growth in the domestic segment. Export sales on the other hand de-grew by 5.4% to `59cr. The company reported gross margin of 49.2% (49.8%), below our estimate of 51%. OPM came in at 11.7%, lower than our estimate of 13.5%. Net profit came in at `36cr, up 23.4% yoy, lower than our estimate of `40.8cr. Outlook and valuation: We expect net sales to post a 16.5% CAGR to `1,662cr and EPS to register a 13.6% CAGR to `110.3 over CY201012E. At current levels, the stock is trading at 24.8x and 20.1x CY2012E and CY2013E earnings, respectively. We recommend neutral on the stock. Key financials
Y E Dec. (` cr) Net sales % chg Adj.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 17.8 10.5 11.3

Abs. (%) Sensex Aventis

3m 4.7 (2.3)

1yr

3yr

(4.6) 111.8 16.1 163.2

CY2010 1,085 11.3 155.0 (1.5) 67.3 13.2 33.0 15.9 12.6 5.1 4.2 31.6

CY2011 1,224 12.8 197.0 27.1 85.5 14.9 26.0 18.3 14.8 4.5 3.7 24.8

CY2012E 1,484 21.2 220.8 12.1 89.7 15.5 24.8 19.1 14.7 4.3 3.2 20.4

CY2013E 1,662 12.0 254.1 15.1 110.3 15.0 20.1 20.4 17.7 3.9 2.8 18.4 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 | 4QCY2011 Result Update

Exhibit 1: 4QCY2011 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 Reported net profit Adj net profit EPS (`)
Source: Company, Angel Research

4QCY2011 338 29 367 39 11.7 0.4 14 54 54 18 36 36 15.7

3QCY2011 313 37 350 50 16.1 0.0 6 81 81 26 55 55 23.8

% chg (qoq) 8.0 (22.2) 4.9 (21.7)

4QCY2010 287 110 397 21 7.2 3

% chg (yoy) 17.9 (73.9) (7.5) 90.5

CY2011 1,230 140 1,369 177 14.4 1

CY2010 1,085 189 1,003 143 15.6 3 18 228 228 81 231 155 67.4

% chg yoy 13.3 (26.2) 36.6 23.7

132.8 (34.0) (34.0) (33.5) (34.3) (34.3)

5 122 (76) 47 18 105 29 12.7

163.0 (56.3) 14.6 0.0 (65.7) 23.4

31 285 285 93 192 192 85.6

72.8 24.7 24.7 14.5 (16.7) 23.9

Exhibit 2: 4QCY2011 Actual vs. Angel estimates

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

Actual 338 29 39 18 36

Estimates 332 35 45 30 41

Variation (%) 1.8 (18.0) (12.2) (40.8) (11.8)

Revenue growth led by the domestic segment: Aventis net sales grew by 24.5%

yoy to `338cr for 4CY2011, in-line with our estimate of `332cr, backed by 24.5% growth in the domestic segment. Export sales on the other hand degrew by 5.4% to `59cr. 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.

March 5, 2012

Aventis Pharma | 4QCY2011 Result Update

Exhibit 3: Sales trend

300 250 200 150 224 222 244 258 279 30 25 20 15 63 54 59 55 59 10 5 0 (5) (10) 4QCY2010 Domestic 1QCY2011 Export 2QCY2011 3QCY2011 4QCY2011 Export Growth (YoY)

(`cr)

100 50 0 (50) (100)

Domestic Growth (YoY)

Source: Company, Angel Research

OPM increased up 4.5% yoy: For 4QCY2011, the company reported gross margin of 49.2% (49.8%), below our estimate of 51%. OPM came in at 11.7%, lower than our estimate of 13.5%. However, on yoy basis , the OPMs expanded by 4.5%.

Exhibit 4: OPM trend

18.0 15.0 12.0 15.4 15.7 14.5 11.7

(%)

9.0 6.0 3.0 0.0 3QCY2010 4QCY2010 1QCY2011 2QCY2011 3QCY2011 7.2

Source: Company, Angel Research

Bottom line below estimates: For the quarter, Net profit came in at `36cr, up 23.4% yoy, lower than our estimate of `40.8cr, mainly on back of lower than the expected OPM.

March 5, 2012

Aventis Pharma | 4QCY2011 Result Update

Exhibit 5: Adj. net profit trend

60 51 50 50 36 29 55

(`cr)

40 30 20 10 0 4Q CY2010 1QCY2011 2QCY2011 3QCY2011

4QCY2011

Source: Company, Angel Research

Recommendation rationale
Focus on top-line growth: Aventis recorded a 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: We expect net sales to post a 16.5% CAGR to `1,662cr and EPS to register a 13.6% CAGR to `110.3 over CY201012E. At current levels, the stock is trading at 24.8x and 20.1x CY2012E and CY2013E earnings, respectively. We recommend neutral on the stock.

Exhibit 6: Key assumptions

CY2012E Net sales growth (%) Domestic sales growth (%) Export sales growth (%) Growth in employee expenses (%) Operating margins (%) Net profit growth (%) Capex (` cr)
Source: Company, Angel Research

CY2013E 12.0 15.0 6.0 14.5 15.0 15.1 21.0

21.2 24.0 6.0 30.3 15.5 12.1 21.0

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Aventis Pharma | 4QCY2011 Result Update

Exhibit 7: One-year forward P/E

2,500 2,000 1,500

(`)

1,000 500 -

13-Nov-07

25-Feb-08

18-Oct-10

16-Nov-10

25-Sep-08

28/09/2011

10x
Source: Company, Angel Research

15x

20x

25x

Exhibit 8: Recommendation Summary

Company Alembic Pharma. Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma*# Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy*# Sun Pharma Reco Buy Buy Neutral Buy Accumulate Buy Neutral Buy Buy Buy Buy Neutral Neutral CMP Tgt. price Upside (`) 46 122 2,220 702 312 53 2,072 415 333 493 186 426 568 (`) 82 166 866 341 1,920 81 555 393 593 255 #

FY2013E EV/EBITDA (x) 4.6 6.5 18.4 13.3 15.4 12.0 5.4 15.3 6.1 7.3 13.8 6.3 5.7 16.8 5.6 8.9 20.1 15.6 18.3 17.5 5.3 23.8 7.5 10.2 16.6 6.6 8.1 21.3 0.7 0.9 2.8 2.5 3.3 3.1 1.0 5.4 0.9 1.6 2.7 1.3 1.4 6.1

FY11-13E 34.8 9.9 13.6 11.7 16.9 22.7 0.6 14.6 15.6 25.4 23.9 13.7 21.8 23.5

FY2013E RoE (%) 38.80 15.0 20.4 29.5 17.0 24.9 8.5 30.7 16.9 27.8 28.6 15.8 30.0 22.5 26.6 10.2 17.7 17.2 15.5 21.8 7.3 41.0 14.2 25.9 24.8 8.9 27.7 22.6

% PE (x) EV/Sales (x) 77.3 36.5 28.2 9.2 14.0 52.2 33.7 18.0 20.0 37.1 -

CAGR in EPS (%) RoCE (%)

Accumulate 1,684

Source: Company, Angel Research; Note: *December year ending; Based on CY2012 estimates

March 5, 2012

16/01/2012

19-Apr-07

19-Aug-09

11-May-09

25-Mar-10

13-Jun-08

4-Dec-09

15-Jan-09

31-Jan-11

15-Jun-11

2-Jan-07

1-Aug-07

7-Jul-10

1-Mar-11

Aventis Pharma | 4QCY2011 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) Share in profit of Asso. Recurring PBT % chg Extraordinary Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items Extra-ordinary items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 166 166 15.1 16.9 72 72 15.1 157 157 (5.3) 16.2 68 68 (5.2) CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E 1,026 43 983 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 36.0 166 996 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) 1,269 40 1,229 86 1,315 15.0 1,053 618 61 176 197 177 23.4 14.4 31 146 18.7 11.8 1 54 18.9 284 21.9 284 92.8 32.6 192 192 192 23.6 15.6 86 86 27.1 313 92.4 29.5 221 221 221 15.3 14.9 90 90 4.8 343 116.7 34.0 226 226 226 2.6 13.4 98 98 9.7 1,546 62 1,484 86 1,570 19.4 1,254 683 74 230 267 230 30.2 15.5 61 169 16.3 11.4 1 59 18.8 313 10.2 1,742 57 1,685 86 1,770 12.8 1,424 775 84 261 303 261 13.5 15.5 62 199 17.6 11.8 1 59 17.2 343 9.5

March 5, 2012

Aventis Pharma | 4QCY2011 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 Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Deferred tax assets Total assets 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 1,014 990 236 754 13 0.4 735 234 167 334 377 358 (9) 1,116 1,011 296 714 13 1 0.4 1,021 418 202 401 549 472 (9) 1,192 1,032 384 647 13 0.4 1,323 639 229 455 623 699 20 1,380 23 806 829 829 23 909 932 932 23 991 1,014 1,014 23 1,093 1,116 1,116 23 1,168 1,192 1,192 23 1,356 1,380 1,380 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

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Aventis Pharma | 4QCY2011 Result Update

Cash flow statement

Y/E Dec. (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments 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 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E 260 18 (116) 98 64 (24) (24) (43) 110 67 107 390 498 241 17 (80) 92 86 (41) (41) (43) 87 44 89 498 586 234 21 (80) 79 96 (27) (5) (32) (55) 60 5 69 586 655 284 31 41 93 264 (614) (614) (146) (146) (497) 655 234 313 61 70 92 351 (21) (21) (146) (146) 184 234 418 343 62 (7) 117 281 (21) (21) (146) (146) 114 525 639

March 5, 2012

Aventis Pharma | 4QCY2011 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 Interest Coverage (EBIT / Int.) (0.6) (2.7) (0.6) (4.0) (0.6) (4.6) (0.2) (1.3) (0.4) (1.8) (0.5) (2.4) 3.3 63 26 46 56 3.1 72 25 49 56 3.2 75 18 47 51 1.9 88 17 73 40 1.6 85 17 54 21 1.7 93 17 58 12 21.8 52.9 21.6 14.8 40.5 17.9 12.6 36.9 15.9 13.7 24.0 18.0 14.7 20.8 19.1 14.7 26.3 16.9 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 96.7 25.7 484.7 89.7 89.7 122.2 26.9 517.5 98.3 98.3 125.2 599.2 30.8 27.7 6.2 0.7 4.7 24.9 5.6 32.5 29.3 5.5 0.9 4.6 30.6 4.9 33.0 20.3 5.0 2.5 4.1 31.1 4.4 26.0 23.0 4.6 1.2 4.0 27.6 4.4 24.8 18.2 4.3 1.2 3.2 20.4 3.9 22.6 17.7 3.7 0.0 2.7 17.1 3.2 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

492.1 1,863.1

March 5, 2012

Aventis Pharma | 4QCY2011 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

Aventis Pharma No No No

4. Broking relationship with company covered 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%)

March 5, 2012

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