vishnuvega
03-01-2008, 08:14 AM
Aventis Pharma Limited (BSE Code: 500674)
The Company
Aventis Pharma Limited is a MNC Pharma company promoted by Sanofi
Aventis, the French Pharma Giant. In 2006, sanofi-aventis generated
sales of approximately € 28.4 billion, invested more than € 4.4
billion in research and development, and employed approximately
100,000 people in its core business. Their Corporate headquarters
are in Paris, France. Aventis Pharma Limited was earlier known as
Hoechst. Hoechst AG was a German chemicals then life-sciences
company that became Aventis after its merger with Rhône-Poulenc S.A.
in 1999, and now sanofi aventis after 2004.
The management
Vijay Mallya, head honcho of the UB Group, best know for his liquor
empire and now Kingfisher airlines is the chairman of Aventis Pharma
Limited.
Financials
During 2006 Aventis Pharma reported sales of 9367 million rupees.
Profit before tax was 2497 million. Profit after tax was 1693
million. A dividend of 320% was declared last year. This included a
special dividend of 160% on the occasion of its completion of 50
years in India. The earnings per share (EPS) was 73.51.
Aventis ends its financial year in December each year. During the
years December 2005 and December 2004, Aventis reported net profit
of 1485 and 1450 million respectively. The cash generated in the
three years, 2004, 2005 and 2006 from operating activities was 748
million, 1531 million and 1275 million.
For complete financials please visit
http://www.moneycontrol.com/ india/stockprice quote/pharmaceut icals/ave
ntispharma/21/ 00/profitloss/ marketprice/ AP26
Cash rich company
This year Aventis has already reported a cash profit of 1290
million. It would be realistic to expect a cash generation of
1500 million this year. That's 150 crores we're talking about. Let's
look at the cash position of last year. Aventis Pharma Limited is a
debt free company and very very cash rich. Aventis had placed its
cash in fixed deposits totalling 3695 million. Cash and bank balance
was 166 million. Let's look at a more complete picture by taking
into account the net current assets of Aventis. This includes
inventory, cash and everything else than can be converted into cash
rather quickly minus any debt. The figure is at 4572 million. This
means if the company chose to it could have had 457 crores in their
bank account last year on December 31, 2006. Since then they've been
generating more cash. Almost a year has gone by and they may
generate a cash profit of 150 crores by December 31, 2006. So we're
looking at cash of close to 600 crores.
Now the market capitalization of Aventis Pharma Limited as of
Deceber 28, 2007 [Current market price: Rs.1,163] is
less than 2,700 crores. Deduct the 600 crores from this (that's
cash, remember) and you have a valuation of Rs.2100 crores.
Now let's look at the other assets of the company.
Brands
'Cardace' is the flagship brand of Aventis Pharma and has a strong
position in the Cardio Vascular segment. The company claims a market
share of 28% for this drug. Aventis Pharma Limited is the Indian arm
and doesn't apparently own any of the brands, all of which are owned
by the parent. Yet, it has the sole authority over the Indian
territory, which is a huge market. The brands of Aventis are so well
known that it is unlikely that you would have remained untouched by
them.
Soframycin, the anti-septic cream is an Aventis Brand. Allegra is
another brand. Allegra is used for treating allergies. Daonil M,
Cetapin XR, Lantus are the other brands of the company, all of which
are used for diabetes. Diabetes affects millions of people and the
market for these medicines in India is expanding at a fast pace,due
to the increasing purchasing power. Lantus grew by 57 % during 2006.
The large distribution network, the ties up with doctors and the
long standing reputation of Aventis are major strengths for them.
Land and Building
As per the annual report of the company, property worth Rs.20 crores
has been given on lease. The total rental income during the
financial year was over 5 crore rupees. So the property given on
rent is possibly worth a lot more.
The company has a factory at Ankleshwar, a large plot at Goa and an
entire building (Aventis House) at Chakala, Andheri, a prime
industrial area in suburban Mumbai where office premises sell for a
minimum of Rs.10,000-Rs12, 000 per square foot.
Investments
As per the 2006 annual report Aventis has investments as below:
99636 equity shares of United Breweries Holdings valued at 750000.
The price is assumed as Rs.7.50 per share.
332120 equity shares of United Breweries valued at 499000. The price
is assumed as Rs.15 per share.
So the value is given as 12,49,000 as per the principal of
conservatism. The real value of this holding is as below:
99636 equity shares of United Breweries Holdings - Price per share
Rs.1250 - Market value is 12.5 crores.
332120 equity shares of United Breweries - Price per share Rs.337 -
Market value is 11.5 crores.
That's a whopping 24 crores which doesn't show on the balance sheet!
Just two days ago United Breweries Holdings jumped by Rs.84 in one
day.
Challenges
One of the biggest challenges facing the company is the proposed new
drug policy. The Drug Prices Control Order (DPCO), which lays out
prices for most medicines widely available in the country, has
proposed to increase the number of drugs under the DPCO-1995 to 354
from the current 74. If this happens, the profitability of all
Pharma companies can be affected. Considering that the next budget,
due in february will be the last one before the general elections
are held in India, it is expected to be populist and it is likely
that a pro-poor healthcare policy may be framed. This may adversely
affect the interests of the pharma industry in general.
There is a lawsuit currently between Aventis and Novartis. More
details here:
http://timesofindia .indiatimes. com/Business/ India_Business/ SC_notice_
to_Aventis_Pharma_ on_Novartis_ plea/articleshow /2612343. cms
Employee costs have been rising for Aventis. That can be attributed
to the booming economy and the shortage of skilled personnel.
The dipping dollar is also potentially a cause for concern but in a
minor way. Looking at the data for 2006, the foreign exchange outgo
( 2413 million) and foreign exchange earnings (2359 million) are
virtually the same for Aventis Pharma.
Shareholding pattern
Going by the 2006 annual report only 6.65% of the company's capital
was held by investors holding upto 10,000 shares. This means that
93.35% of the company's shares are held by promoters, FIIs, FIs and
investors who have more than 10,000 shares each or over Rs.1 Crore
invested in the company. This figure of 6.65 % has since then
declined to 6.22% as of September 2007.
LIC owns 4.79% of the company's capital.
Aberdeen Asset Management Asia Ltd owns 4.49%
Morgan Stanley Investment Management Inc owns 1.28 % as of
september 2007 but has since sold most of its shares.
Morgan Stanley Mutual Fund A/c owns 1.08
Reliance Capital Trustee Co Ltd A/c owns 1.08% shares and has
bought an additional 1.5 lakh shares recently.
UTI Mastershare Unit Scheme owns 1.06
Azim Hashmi Premji owns 1.03
The floating stock is very limited in the market and is expected to dry up further as institutional interest rises in this company. More recommendations at http://in.groups. yahoo.com/ group/multibagge r/
The Future
In its core business, Aventis is in a strong position with long
established brands and a huge distribution network. Demand for its
medicines will continue to grow with inroads in smaller towns and
rural areas and the general growth in population. With an over 600
crore war chest, it is likely that Aventis could think of making
some acquisition in an effort to grow inorganically as that seems to
be the new mantra for Indian industry. If this is not done, even
with flat growth in sales and profits, in three years time, the
company should be sitting on a pile of over 1000 crores in cash. The
company doesn't really have a track record of giving bonus shares or
one could have expected a liberal bonus. Aventis has not been
playing the stock market and that is really commendable considering
the amount of excess cash it has.
In any case, at a price of Rs.1160, the PE ratio only 15, lower than
many other comparable pharma companies. With many mutual funds
announcing schemes and expected to close over the next one month,
one can expect increasing insitutional interest in Aventis Pharma
Limited. Although many institutions own this stock, it is still
under owned. Even a Pharma fund run by Franklin Templeton didn't
hold this stock as on Nov 30, 2007.
Brokerage houses and their ratings
Although one should not take the ratings of brokerage houses too
seriously, for what it's worth, Aventis Pharma was being recommended
by Motilal Oswal in April 2007 at a higher price than the current
market price. ICICI Securities recommended it in March 2007. Karvy
recommended it in March 2007 giving a target price of Rs.1520. In
January 2007 Kotak gave a price target of Rs.1643 for it. CLSA, Ask
Raymond James and Prabhudas Liladher have also been bullish on it,
all at prices higher than the current market price. See details at
http://indiaearning s.moneycontrol. com/sub_india/ news.php?
category=16&sc_did=AP26
The Company
Aventis Pharma Limited is a MNC Pharma company promoted by Sanofi
Aventis, the French Pharma Giant. In 2006, sanofi-aventis generated
sales of approximately € 28.4 billion, invested more than € 4.4
billion in research and development, and employed approximately
100,000 people in its core business. Their Corporate headquarters
are in Paris, France. Aventis Pharma Limited was earlier known as
Hoechst. Hoechst AG was a German chemicals then life-sciences
company that became Aventis after its merger with Rhône-Poulenc S.A.
in 1999, and now sanofi aventis after 2004.
The management
Vijay Mallya, head honcho of the UB Group, best know for his liquor
empire and now Kingfisher airlines is the chairman of Aventis Pharma
Limited.
Financials
During 2006 Aventis Pharma reported sales of 9367 million rupees.
Profit before tax was 2497 million. Profit after tax was 1693
million. A dividend of 320% was declared last year. This included a
special dividend of 160% on the occasion of its completion of 50
years in India. The earnings per share (EPS) was 73.51.
Aventis ends its financial year in December each year. During the
years December 2005 and December 2004, Aventis reported net profit
of 1485 and 1450 million respectively. The cash generated in the
three years, 2004, 2005 and 2006 from operating activities was 748
million, 1531 million and 1275 million.
For complete financials please visit
http://www.moneycontrol.com/ india/stockprice quote/pharmaceut icals/ave
ntispharma/21/ 00/profitloss/ marketprice/ AP26
Cash rich company
This year Aventis has already reported a cash profit of 1290
million. It would be realistic to expect a cash generation of
1500 million this year. That's 150 crores we're talking about. Let's
look at the cash position of last year. Aventis Pharma Limited is a
debt free company and very very cash rich. Aventis had placed its
cash in fixed deposits totalling 3695 million. Cash and bank balance
was 166 million. Let's look at a more complete picture by taking
into account the net current assets of Aventis. This includes
inventory, cash and everything else than can be converted into cash
rather quickly minus any debt. The figure is at 4572 million. This
means if the company chose to it could have had 457 crores in their
bank account last year on December 31, 2006. Since then they've been
generating more cash. Almost a year has gone by and they may
generate a cash profit of 150 crores by December 31, 2006. So we're
looking at cash of close to 600 crores.
Now the market capitalization of Aventis Pharma Limited as of
Deceber 28, 2007 [Current market price: Rs.1,163] is
less than 2,700 crores. Deduct the 600 crores from this (that's
cash, remember) and you have a valuation of Rs.2100 crores.
Now let's look at the other assets of the company.
Brands
'Cardace' is the flagship brand of Aventis Pharma and has a strong
position in the Cardio Vascular segment. The company claims a market
share of 28% for this drug. Aventis Pharma Limited is the Indian arm
and doesn't apparently own any of the brands, all of which are owned
by the parent. Yet, it has the sole authority over the Indian
territory, which is a huge market. The brands of Aventis are so well
known that it is unlikely that you would have remained untouched by
them.
Soframycin, the anti-septic cream is an Aventis Brand. Allegra is
another brand. Allegra is used for treating allergies. Daonil M,
Cetapin XR, Lantus are the other brands of the company, all of which
are used for diabetes. Diabetes affects millions of people and the
market for these medicines in India is expanding at a fast pace,due
to the increasing purchasing power. Lantus grew by 57 % during 2006.
The large distribution network, the ties up with doctors and the
long standing reputation of Aventis are major strengths for them.
Land and Building
As per the annual report of the company, property worth Rs.20 crores
has been given on lease. The total rental income during the
financial year was over 5 crore rupees. So the property given on
rent is possibly worth a lot more.
The company has a factory at Ankleshwar, a large plot at Goa and an
entire building (Aventis House) at Chakala, Andheri, a prime
industrial area in suburban Mumbai where office premises sell for a
minimum of Rs.10,000-Rs12, 000 per square foot.
Investments
As per the 2006 annual report Aventis has investments as below:
99636 equity shares of United Breweries Holdings valued at 750000.
The price is assumed as Rs.7.50 per share.
332120 equity shares of United Breweries valued at 499000. The price
is assumed as Rs.15 per share.
So the value is given as 12,49,000 as per the principal of
conservatism. The real value of this holding is as below:
99636 equity shares of United Breweries Holdings - Price per share
Rs.1250 - Market value is 12.5 crores.
332120 equity shares of United Breweries - Price per share Rs.337 -
Market value is 11.5 crores.
That's a whopping 24 crores which doesn't show on the balance sheet!
Just two days ago United Breweries Holdings jumped by Rs.84 in one
day.
Challenges
One of the biggest challenges facing the company is the proposed new
drug policy. The Drug Prices Control Order (DPCO), which lays out
prices for most medicines widely available in the country, has
proposed to increase the number of drugs under the DPCO-1995 to 354
from the current 74. If this happens, the profitability of all
Pharma companies can be affected. Considering that the next budget,
due in february will be the last one before the general elections
are held in India, it is expected to be populist and it is likely
that a pro-poor healthcare policy may be framed. This may adversely
affect the interests of the pharma industry in general.
There is a lawsuit currently between Aventis and Novartis. More
details here:
http://timesofindia .indiatimes. com/Business/ India_Business/ SC_notice_
to_Aventis_Pharma_ on_Novartis_ plea/articleshow /2612343. cms
Employee costs have been rising for Aventis. That can be attributed
to the booming economy and the shortage of skilled personnel.
The dipping dollar is also potentially a cause for concern but in a
minor way. Looking at the data for 2006, the foreign exchange outgo
( 2413 million) and foreign exchange earnings (2359 million) are
virtually the same for Aventis Pharma.
Shareholding pattern
Going by the 2006 annual report only 6.65% of the company's capital
was held by investors holding upto 10,000 shares. This means that
93.35% of the company's shares are held by promoters, FIIs, FIs and
investors who have more than 10,000 shares each or over Rs.1 Crore
invested in the company. This figure of 6.65 % has since then
declined to 6.22% as of September 2007.
LIC owns 4.79% of the company's capital.
Aberdeen Asset Management Asia Ltd owns 4.49%
Morgan Stanley Investment Management Inc owns 1.28 % as of
september 2007 but has since sold most of its shares.
Morgan Stanley Mutual Fund A/c owns 1.08
Reliance Capital Trustee Co Ltd A/c owns 1.08% shares and has
bought an additional 1.5 lakh shares recently.
UTI Mastershare Unit Scheme owns 1.06
Azim Hashmi Premji owns 1.03
The floating stock is very limited in the market and is expected to dry up further as institutional interest rises in this company. More recommendations at http://in.groups. yahoo.com/ group/multibagge r/
The Future
In its core business, Aventis is in a strong position with long
established brands and a huge distribution network. Demand for its
medicines will continue to grow with inroads in smaller towns and
rural areas and the general growth in population. With an over 600
crore war chest, it is likely that Aventis could think of making
some acquisition in an effort to grow inorganically as that seems to
be the new mantra for Indian industry. If this is not done, even
with flat growth in sales and profits, in three years time, the
company should be sitting on a pile of over 1000 crores in cash. The
company doesn't really have a track record of giving bonus shares or
one could have expected a liberal bonus. Aventis has not been
playing the stock market and that is really commendable considering
the amount of excess cash it has.
In any case, at a price of Rs.1160, the PE ratio only 15, lower than
many other comparable pharma companies. With many mutual funds
announcing schemes and expected to close over the next one month,
one can expect increasing insitutional interest in Aventis Pharma
Limited. Although many institutions own this stock, it is still
under owned. Even a Pharma fund run by Franklin Templeton didn't
hold this stock as on Nov 30, 2007.
Brokerage houses and their ratings
Although one should not take the ratings of brokerage houses too
seriously, for what it's worth, Aventis Pharma was being recommended
by Motilal Oswal in April 2007 at a higher price than the current
market price. ICICI Securities recommended it in March 2007. Karvy
recommended it in March 2007 giving a target price of Rs.1520. In
January 2007 Kotak gave a price target of Rs.1643 for it. CLSA, Ask
Raymond James and Prabhudas Liladher have also been bullish on it,
all at prices higher than the current market price. See details at
http://indiaearning s.moneycontrol. com/sub_india/ news.php?
category=16&sc_did=AP26