Sanofi-Aventis Pakistan Limited

Sanofi-Aventis Pakistan Limited (PSX: SAPL) was set up in 1967 as Hoechst Pakistan Limited. With change of businesses and activities, mergers and acquisitions over a period of years, it stands today as Sanofi-Aventis Pakistan Limited.

Sanofi is a subsidiary of Sanofi Foreign Participations B.V. (the parent company). Sanofi S.A. France is the ultimate parent company.

Shareholding pattern

As at December 31, 2020, 74 percent of the shares are with the associated companies, undertakings and related parties. Within this, Sanofi Foreign Participations B.V. held nearly 53 percent of the total shares. Close to 14 percent are with the directors, CEO, their spouses and minor children. Of this, Mr. Arshad Ali Gohar, a non-executive director, holds over 8 percent of the total shares; general public holds 4 percent shares. The remaining about 8 percent shares is with the rest of the shareholder categories.

Historical operational performance

Sanofi-Aventis had seen a continuously rising topline, with the exception of CY20 when it contracted by close to 3 percent. Profit margins, on the other hand, have been fluctuating over the years.

During CY16, revenue growth rate was over 10 percent, one of the highest seen over the years. Contributions to sales are made by the pharmaceutical division, vaccine and healthcare products. Primarily, sales for the company were driven by some of its well-known brands such as Flagyl®, Amaryl®, etc. The vaccine division of the company also witnessed a 29 percent increase in sales that helped drive revenue. Cost of production, on the other hand, reduced notably to consume 64 percent of revenue, down from nearly 74 percent in the year before, helping to improve gross margins that grew to nearly 34 percent. This also trickled down to the net margin that improved drastically from less than 1 percent in CY15 to over 8 percent in CY16.

The company’s revenue growth rate halved from over 10 percent in CY16 to a positive nearly 5 percent in CY18. This was, in part, a result of increase in prices of certain products. Cost of production also reduced marginally to make up 64 percent of revenue that helped gross margin to rise slightly to 35.6 percent. However, this improvement in gross margin could not be translated into a higher net margin due to a notable rise in other expenses; this was essentially a result of a net exchange loss.

In CY18, the company posted a net revenue growth of 4 percent, despite the challenges faced by the pharmaceutical industry of the country, such as price deregulation and devaluation of the currency. The pharmaceutical business contributed over 80 percent of the company’s total sales; this division saw an increase of 7.7 percent in its sales. Overall revenue growth was slowed down by the vaccine business, that in turn was a result of a decline in “public (government tender) business”. Moreover, the currency devaluation resulted in higher cost of imports that led gross margin to reduce to 30 percent, down from over 35 percent in CY17. Other expenses also continued to increase its share in revenue in CY18, due to a net exchange loss. Thus, net margin further contracted to 4.7 percent.

Topline of the company grew by nearly 12 percent in CY19, crossing Rs 14 billion. A major contributor to revenue, the pharmaceutical business saw an increase of 12.3 percent in its sales. Flagyl® alone contributed 22 percent of the total topline of the company. The vaccine division also witnessed a rise in its sales revenue by 49 percent. Despite this, the company was unable to translate this into a high bottomline, with net margin posted at 1 percent. This was due to the currency devaluation that led to a rise in cost of imports. Note that the pharmaceutical industry of Pakistan relies heavily on imports for its procurement of APIs (Active Pharmaceutical Ingredient). Therefore, the overall cost of production rose to over 74 percent- one of the highest seen.

Recent results and future outlook

During the first quarter of CY20, revenue for the company contracted slightly by 4.76 percent year on year. This partly attributed to the general economic slowdown in the country, that was further exacerbated when the Covid-19 pandemic hit the country. Therefore, the population was avoiding visiting hospitals, and OPDs were also closed. Currency devaluation continued to impact costs adversely, keeping gross margins lower year on year, while the quarter ended with a loss of Rs 84 million.

The second quarter also saw a contracting topline, both, in comparison to 1QCY20 and year on year. In the event of the pandemic, a strict lockdown was placed that brought most of the business activities to a halt. Therefore, the company’s promotional activity was also on a complete standstill, the effect of which is more visible in 2QCY20. With slight reduction in cost of production, loss for the quarter was little contained at Rs 19 million.

Topline recovered to some extent by the third quarter as it increased by 11 percent year on year. It was also the highest topline between all the quarters of CY20. This was driven by Flagyl®, Lantus®, and Amaryl® that increased by 17.3 percent, 49.7 percent and 22 percent. Thus, with lower production costs and distribution expenses, net margin for CY20 was 3.5 percent. Overall, in CY20, Sanofi-Aventis Pakistan’s earnings were seen growing noticeably not due to the growth in topline - which remained lower by 2.7 percent year-on-year – but due to lower expenses; and net margins bounced back to 3.5 percent in CY20 from 1 percent in CY19.

The future still holds uncertainty as cases are on the rise, while the process of vaccinations has also begun.