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Sanjiv Shankaran

AVENTIS Pharma recorded a net profit of Rs 66.6 crore on an income of Rs 601.9 crore in 2001. The company's 2001 result cannot be compared to that of the preceding year because of the following reasons:

In 2000, Aventis changed its financial year to January-December. Therefore, the 2000 result is for a nine-month period, from April to December. In 2001, the company brought Rhone-Poulenc Rorer (India) Private into its fold through an amalgamation and the result reflects the development.

To provide a measure of progress, Aventis indicated that sales in 2001 — Rs 589.2 crore — grew 7 per cent over the preceding year after relevant adjustments were made.

Focussed product mix... Over the last couple of years, Aventis has initiated a significant change in its product mix.

A couple of lacklustre brands — Omnatax and Haemaccel — were sold and top notch brands from the parent's portfolio have been introduced. Result: Aventis' product basket is a good blend of old blockbusters such as Combiflam (painkiller) and fast growing new drugs such as Allegra (anti-allergy).

Aventis draws from its parent's portfolio to fill its product basket. The parent's strength in lies respiratory, diabetes, cardiovascular and anti-infective therapeutic segments — areas where the Indian market holds rich potential. The highlight of product introductions over the last couple of years has been the launch of promising drugs in fast-growing areas such as anti-allergy and -diabetes segments.

... leads to higher profitability: Aventis registered an operating profit of Rs 111.3 crore in 2001. The profitability out of operations was 18.48 per cent, notably higher than 2000's profitability of 14.80 per cent.

The company attributed the sharp jump in profitability to the positive spin-off of its improved product mix and a 30 per cent growth in export turnover in 2001, which was Rs 121.5 crore, 21 per cent of its net sales.

The net profit for 2001 was Rs 66.6 crore. Net profit, as a proportion of total income, was 11.06 per cent, a level far higher than the 2000 profit margin of 5.70 per cent. The earnings per share (EPS) for 2001 was Rs 28.92.

Investment outlook: Aventis' share price is now around Rs 400 (March 28). The stock is valued about 14 times its 2001 EPS. Aventis Pharma represents an attractive long-term investment at the current level for the following reasons.

Of the listed pharma MNCs in India, Aventis arguably receives the strongest support from its parent. The parent is instrumental in stocking Aventis India's portfolio with potential blockbusters — a factor that promises to help the company improve profitability over the next couple of years.

Recent introductions by Aventis in fast-growing therapeutic segments appear to be paying off because most have clocked a high growth rate last year. Allegra, Amaryl (anti-diabetic drug) and Cardace (cardiovascular drug) have grown fast and contributed to higher profitability in 2001. The trend is likely to continue in the near future.

Another positive development in store is the export of Daonil (anti-diabetic) tablets to Europe. Export realisations are likely to be higher than domestic sales for Daonil and, therefore, exports should boost profitability.

Aventis' incremental capital use is likely to be limited, always a positive factor in equity valuation. Last year, the company sold assets to reduce net debt and the result is that interest payment is almost negligible. A relatively low increase in capital deployed in the business indicates that Aventis' returns are likely to increase over the next couple of years.

On the flip side, there is still an element of uncertainty about the impact of the new drug policy on Aventis.

The excitement generated by generic players among domestic pharmaceutical companies may also have a negative impact on Aventis' equity valutation for a while.

For an investor willing to wait a couple of years, Aventis appears attractive at the current level. While it may take a while for the share price to reflect Aventis' strengths, the stock holds potential for long-term capital appreciation.

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