Sanofi India: Growth underperformance to continue in CY23

8 May 2023 , 10:44 AM

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Target Price: Rs. 5,925

The four pillars of its growth strategy are: 1) Strengthening Diabetes portfolio 2) Ramp-up of CHC business 3) Leveraging innovation and partnerships for new launches 4) Realigning the GTM model. But, some of these initiatives have been around for a while and Sanofi has still failed to outperform IPM growth, with domestic sales growing only at ~7% CAGR versus IPM growth of ~10% CAGR over CY18-22. Further in CY23, Sanofi’s revenue growth will again be tepid as its biggest brand Lantus (20% of revenue) will see net price reduction of ~9-10%, due to inclusion under NLEM. Underperformance for Pharma MNCs is structural due to limited growth contribution from volumes/new launches and hence MNC companies consistently struggle to outperform IPM growth. Analysts at IIFL Capital Services continue to prefer Indian players (JB Pharma, Alkem & Torrent) over MNC companies to play the branded generic story.

Diabetes – Sanofi’s biggest growth driver to be affected in CY23

While Sanofi’s volume growth in its top-3 therapies of Diabetes, Cardiac and Respiratory has been -1% to -4% CAGR over CY18-22, the combined sales growth in these 3 therapies has been +8% CAGR. However, net price cut of 9-10% in Lantus (20/55% of Sanofi’s India/Diabetes sales) will shave off around 200 basis points from Sanofi’s overall growth this year. With muted performance in other therapies too, we expect Sanofi’s India revenue to grow only at ~8% CAGR over CY22-25 versus IPM growth expectation of 10-11%.

Structural issues hamper Sanofi’s growth profile in India

New launches by Sanofi’s global parent in the Oncology/Immunology segments will happen through its unlisted entities in India. Hence, with limited new launches and tepid volume growth in existing portfolio, Sanofi’s only lever for growth remains price hikes. Per secondary data, Sanofi grew at 6.5% CAGR over CY18-22, driven by price hikes as ~80% of this growth has come via price hikes for Sanofi versus ~50% of IPM growth coming via price hikes.

Robust return ratios with strong cashflow generation

Over CY20-22, the company divested Ankleshwar plant, Nutraceuticals business, and Soframycin/Sofradex brands. Divestment of these low-margin, non-core assets improved Sanofi’s RoE profile from ~20% to ~30%; NWC improved from 40 days to 12 days over CY19-22. Sanofi has also been generating strong OCF/FCF of Rs. 4.5-5 billion p.a. (ex-divestment proceeds).