Aventis Pharma Ltd’s dividend declaration will please shareholders, who will get Rs51 a share in addition to the Rs4 a share they got earlier. The amount includes a special dividend, to distribute the proceeds of divestment of a 49% stake in a joint venture (JV), Chiron Behring Vaccines Pvt. Ltd.
The dividend yield to shareholders works out to a nice 3%. But when fixed deposits are yielding 9%, shareholders are keener on capital appreciation. Aventis has done okay on that front, with its share rising by 12% in a year, and has bettered the 9% increase by its peers in the BSE-500 index of the Bombay Stock Exchange.
The company’s December quarter results show a smart growth in sales, with overall revenue rising by about 20%, much higher than the 15% increase in material consumption. But a 19% increase in employee costs and a 32% increase in other expenditure caused a 50 basis points drop in its operating profit margin, over the year-ago period. Aventis, like other pharma multinational companies (MNCs), has been investing in the Indian market for growth. Leading pharma companies are eyeing large and fast growing emerging markets to offset slower growth in developed markets. Sanofi-Aventis, Aventis Pharma’s parent firm, saw sales in emerging markets rise by 16%, compared with 4% growth globally in 2010.
In India, Aventis Pharma has been adding to its field force, expanding its market presence and entering the over-the-counter market for medicines. Its domestic pharmaceutical sales rose by 23% during the quarter, much better than the estimated domestic market growth of about 15%. Total sales growth was lower at 20%, due to slower growth in exports and discontinuation of Rabipur (rabies vaccine) sales.
While operating profit rose by 15% during the quarter, this is likely to fluctuate during the year, as the firm invests in promoting its products. The company’s main therapeutic categories include diabetes, cardiology, allergy, oncology and pain management. Net profit growth was much higher, up fourfold, but mainly due to higher other income and exceptional income from sale of its stake in the JV.
At Rs1,847, Aventis’ share discounts its 2010 earnings by about 28 times, which is high considering the operating profit growth, but is usually attributed to the premium that MNC stocks earn, and in this case, its higher sales growth, too. Once it reaches a certain critical mass of sales, from its new initiatives, the effect on its profits would be visible. Till then, it may struggle to justify these valuations.
We welcome your comments at email@example.com