ICICI Securities termed that Abbott India’s (AIL) Q4FY20 performance weak, as even though the company reported a revenue growth of 6.1 per cent YoY to Rs9.6bn, its EBITDA margin declined 250bps YoY and 780bps QoQ to 14.4 per cent and adjusted PAT declined 2.0 per cent YoY to Rs1.1bn.
This low growth could be due to the nationwide lockdown implemented in Mar’20 on account of COVID-19, the capital market company assessed. “We expect pressure in the near term, which has several 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,” commented ICICI Securities.
Weak operational performance
Revenue growth of 6.1 per cent was affected by the nationwide lockdown on account of COVID-19. On an absolute level the gross cost grew 10.2 YoY but declined 7.1 per cent sequentially. This rise is partially attributed to higher API prices and change in product mix (higher sales from Novo portfolio). Hence, gross margin declined 220bps YoY and 230 bps QoQ. Employee cost and S,G&A expenses grew 6.4 per cent and 7.9 per cent YoY on an absolute basis. However, S,G&A expenses grew 24.3 per cent QoQ as the company had to take extra safety measures at its Goa plant. Overall, EBITDA margin declined 250bps YoY and 780bps QoQ to 14.4 per cent. This weak operational performance restricted adj PAT (-2.0 per cent YoY, -40.6 per cent QoQ) for the quarter, said ICICI Securities.
Key products performance
As per AIOCD data the AIL has reported a growth of 7.7 per cent on its key products and the Novo portfolio has reported a growth of 12.8 per cent. Udiliv, Cremaffin Plus, Claribid and Digene have reported strong double digit YoY growth of 18.9 per cent, 18.1 per cent, 67.1 per cent and 23.2 per cent respectively for the quarter. Duphaston declined 9.6 per cent YoY while Thyronorm and Cremaffin remained flat. Duphalac and Vertin reported high-single digit growth for the quarter. Amongst the Novo portfolio, Mixtard, Ryzodeg, Actrapid, Tresiba and Victoza have reported strong YoY growth of 11.5 per cent, 24.6 per cent, 16.0 per cent, 40.4 per cent and 31.5 per cent respectively for the quarter. However, Novomix and Novorapid have reported a YoY growth of 3.5 per cent and 4.7 per cent respectively.
Outlook
Operating leverage in India business would drive margin improvement of 330bps and result in 22.7 per cent earnings CAGR over FY20-FY22E. This would help generate healthy, free cash flow of ~Rs17bn over FY21E-FY22E. The company has announced a dividend of Rs250/share (including a special dividend of Rs143/share). Abbott has appointed 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 have reduced our revenue and EPS estimates for FY21E-FY22E by 4-5 per cent and 12-14 per cent to factor COVID-19 impact and lower other income. Maintain ADD with a revised target price of Rs17,636/share based on 42xFY22E EPS. Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company.