Abbott India - Strong performance despite challenges - ICICI Securities

Abbott India Limited's (AIL) Q1FY21 performance was strong and it also beat our estimates on all fronts. Revenue grew 6.5% YoY to Rs10.6bn (I-Sec: Rs9.5bn), EBITDA margin grew 450bps YoY and 750bps QoQ to 21.9% (I-Sec: 14.5%) and adj. PAT grew 54.2% YoY to Rs1.8bn (I-Sec: Rs1.1bn). We believe this growth was supported by the Novo portfolio in the challenging environment. We expect pressure in the near term with uncertain elements however, we remain positive on the company considering high visibility of strong growth with its exposure exclusively in domestic formulations, strong balance sheet with deep cash reserves, high return ratios and strong brand equity built over the years. Maintain BUY with a revised target price of Rs18,712/share (earlier: Rs17,636/share).

- Strong operational performance: Revenue growth of 6.5% was supported by the Novo portfolio, in our view, as the company core portfolio is largely acute which would have declined due to the nationwide lockdown on account of COVID-19. On an absolute level the gross cost grew 9.8 QoQ (+8.9% YoY). This rise is partially attributed to higher API prices and change in product mix (higher sales from Novo portfolio). Hence, gross margin declined 50bps QoQ (-80bps YoY). Employee cost rose 10.5% QoQ (+6.9% YoY). However, S,G&A expenses declined 38.8% sequentially (-36.1% YoY) with decline in marketing and travelling expenses due to lockdown. Overall, EBITDA margin expanded 750bps QoQ (+450bps YoY) to 21.9%. We believe some of these cost savings would be sustainable over long term. This strong operational performance aided PAT growth (+62.5% YoY, +54.2% QoQ).

- Key products performance: As per AIOCD data the AIL has reported a decline of 8.4% in its key products while the Novo has reported a growth of 5.5%. Duphalac, Vertin, Cremaffin Plus, Claribid and Digene have reported YoY growth of 3.4%, 2.1%, 2.9%, 5.3% and 20.1% respectively for the quarter. Duphaston reported a steep decline of 35.8% YoY affected by closure of OPDs. Thyronorm, Udiliv and Cremaffin reported a YoY decline of 2.7%, 3.7% and 13.8% respectively. Amongst the Novo portfolio, Novomix, Ryzodeg, Tresiba and Victoza have reported strong YoY growth of 8.4%, 8.9%, 34.1% and 9.5% respectively for the quarter. Actrapid also reported a growth but lower at 5.5% YoY. Mixtard and Novorapid remained flattish YoY.

- Outlook: Focus on digital marketing and operating leverage in core portfolio would drive margin improvement of 470bps and result in 26.4% earnings CAGR over FY20-FY22E. This would help generate healthy free cashflow of ~Rs18bn over FY21E-FY22E. Company has appointed Mr. Anil Joseph as the new MD with effect from 1st July, 2020. He has >25 years of work experience and joined Abbott in 2016.  Valuations and risks: We raise our EPS estimates for FY21E-FY22E by 6-7% and to factor lower expenses. Maintain BUY with a revised target price of Rs18,912/share based on 42xFY22E EPS (earlier: Rs17,636/share). Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company.

Shares of ABBOTT INDIA LTD. was last trading in BSE at Rs.16650 as compared to the previous close of Rs. 16975.7. The total number of shares traded during the day was 2313 in over 1213 trades.

The stock hit an intraday high of Rs. 17240 and intraday low of 16545. The net turnover during the day was Rs. 38981783.

Source : Equity Bulls

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