Sanofi India: Limited launches, muted volumes hurting growth

27 Feb 2024 , 11:56 AM

Sanofi has continued to underperform domestic pharma market growth, with its retained India business growing at 6% Cagr over CY18-23 vs IPM growth of 10-11% Cagr, owing to limited contribution from new launches and muted volume growth in its top-3 therapies of Diabetes, Cardiac and Respiratory. With 40% of Sanofi’s India portfolio being under NLEM, analysts of IIFL Capital Services believe CY24 will be another muted year for Sanofi given there will be no price increase benefit for 40% of its India sales owing to flattish WPI inflation last year, and accordingly analysts of IIFL Capital Services downgrade the stock from ADD to REDUCE. With the stock having rallied >70% over the past 1yr period led by the proposed demerger of the CHL business, they believe the valuation rerating from the CHL demerger is largely in the price now. Analysts of IIFL Capital Services TP of ₹8,125 is pegged at ~25x Mar-26 EPS and implies 10% potential downside. 

Limited new launches and muted volume growth continue to impact Sanofi’s India business: 

Per secondary data, Sanofi’s India business grew only 5.9% Cagr over CY20-23 (vs IPM’s 11% Cagr) driven by volume/ price/new launches contribution of 1.5/3.6/0.8% resp. While new launches for Sanofi have been muted, Sanofi’s volumes in its top-3 therapies of Diabetes, Cardiac and Respiratory have also declined 3-6% Cagr over the past 3 years, thereby impacting company’s overall performance in India. Scale-up in Toujeo also seems to be impacting Lantus’ growth, with Toujeo/Lantus’ volumes growing 33/1% respectively in CY23. 

Analysts of IIFL Capital Services believe new launches are already factored in their estimate of 8% Cagr for Sanofi’s India sales over CY23-26: 

Mgmt is targeting 3 new product launches by Mar/Apr-24, which includes Soliqua, Insutage and Cetaphin-S. With Sanofi consolidating its Diabetes portfolio under one unit, mgmt is hopeful that Soliqua’s launch will enable the company to participate in the pre-mix Insulin market in India which is equally large as the basal Insulin market (where Sanofi competes through Lantus and Toujeo).

CHL demerger on track to get completed by Q2CY24: 

Based on Sanofi’s past disclosures, analysts of IIFL Capital Services estimate that CHL business contributes sales of Rs7.5-7.8bn, accounting for 35% of Sanofi’s domestic sales. Key CHL brands of Allegra, Combiflam, Depura and Avil have grown at 8-9% Cagr over CY20-23 vs Sanofi’s overall India business growing at 6% Cagr. Assuming 30% margins and 35x trailing EV/Ebitda, the CHL business could be valued at an EV of USD1bn, accounting for 40% of Sanofi’s current EV.