New launches could spur growth at Abbott India, near-term headwinds weigh

Upsides are limited for the stock, which has gained over 90% in a year

The Abbott India stock is down about 6 per cent from its highs over the last week on weaker-than-expected March quarter results and the muted near-term outlook. The company is likely to report a soft June quarter given the Covid-19 outbreak, which has impacted raw material availability and supply chain, as well as demand. 

The demand worries are visible in the sales numbers for April and May with the company reporting an 8 per cent decline each year-on-year. However, the company outperformed the market, which fell 9-11 per cent over the last two month. 

The decision by the Indian drug pricing regulator to reduce the maximum retail prices of 40 formulations is also expected to impact the company. 

Despite the muted results and near-term worries, for the multinational drug major, India is the second largest by market share and is expected to post strong growth, led by power brands and new launches. 

 

 

The company’s top 10 brands posted average annual revenue growth of 18 per cent over the FY15-20 period. The share of brands as a proportion of revenues has increased from 37 per cent in FY15 to 47 per cent in FY20.

Analysts at CLSA, while indicating that the lockdown-led disruption will impact growth, expect new launches and volume growth to drive sales for the company. In addition to new launches and extensions introduced by the company, the access to innovative molecules from the global parent is expected to push growth.

Despite the near-term hiccups, analysts at ICICI Direct believe Abbott India will continue to generate investor interest with a robust and sustainable business model, backed by stable growth, a debt-free balance sheet and favourable market dynamics with doctor prescription stickiness. They expect the company to maintain its growth trajectory due to power brands and consistency of new launches. The company launched over 100 brands in 10 years. 

While these are positives, the stock, which has gained 90 per cent over the last year, trades at an expensive 38 times its FY22 earnings estimates. Await a better entry opportunity.