Abbott India: More branded products, new launches, volumes to aid gains

The company outperformed most of its peers with a 6 per cent growth in revenues and a 450 basis points y-o-y expansion in operating profit margins

The Abbott India stock has gained over 13 per cent over the last couple of weeks on strong Q1 performance in a tough quarter. The company outperformed most of its peers with a 6 per cent growth in revenues and 450 basis points year-on-year (YoY) expansion in the operating profit margin. 

According to analysts at ICICI Securities, growth was supported by the anti-diabetes portfolio of Novo Nordisk as the core portfolio of Abbott India is largely in acute therapy. The latter segment was primarily responsible for the weak performance of the pharma sector over the last couple of months.

The margin gains were led by lower sales, general, and administration costs, which fell 39 per cent on a sequential basis. Though some of the gains were on account of lower travelling and marketing expenses and should reverse in the coming quarters, analysts expected the rest to sustain. 

 

 

Growth going ahead is expected to be led by the branded business, which accounts for 63 per cent of the company's revenues. New launches and direct touch programmes have helped the company outperform the sector by 1.5-1.8x, say analysts at Axis Securities. They expect the share of the branded business to grow to 66 per cent by FY23.

Given the higher share of the branded business, which fetches a margin of 26-27 per cent against the company’s level margin of 18 per cent, analysts expect overall profitability to move up.  

Analysts at ICICI Securities expect margins to improve 470 basis points over the next two years because of the focus on digital marketing and operating leverage in the core portfolio. This, coupled with healthy earnings growth, should generate free cash flow of Rs 1,800 crore over this period. 

While the stock has some more upside left, any move by the government to include key drugs under price control and new product launch through its unlisted subsidiary may put pressure on the stock, which is trading at over 38x its FY22 earnings estimates.