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Abbott India Equity Research

HomeCompanyAbbott India Equity Research

Date of Research – 12 January, 2016

Price – Rs. 5633.60

About the Company

Abbott India Limited (“Abbott” or the “Company”) is one of India’s fastest growing pharmaceutical companies and part of Abbott’s Global Pharmaceutical business in India. Abbott India Limited is a subsidiary of Abbott Laboratories. The Company has its presence in multiple therapeutic categories such as Women’s Health, Gastroenterology, Neurology, Thyroid, Diabetes & Urology, Pain Management, Vitamins, Anti-Infectives & other therapy areas. Abbott reaches customers through a wide network of 35 distribution points, catering to over 4,500 stockists and 150,000 retail outlets. *The Company has changed its financial year from Jan-Dec to April-March in FY 2014. Hence for FY 2014 , the Company has reported its financial number for fifteen months ended on March 31, 2014.

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 1,652.69 2,296.89 2,288.64 2,628.42  2,938.69 
Expenses 1,450.89 2,028.55 1,976.39 2,261.88  2,541.37  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 201.80 268.34 312.25 366.54  397.32  
Depreciation 19.49 21.93 14.94 14.44  16.43  
Finance Costs 0.02 0.08 0.50 0.81  2.04  
Other income 22.31 48.22 47.55 50.44  57.64
Exceptional items (10.39) – 
PBT 214.99 294.55 344.36 401.73  436.49  
Tax 70.29 96.10 115.40 142.10  159.84  
PAT (before Minority Interest and share of Associates) 144.70 198.45 228.96 259.63  276.65  

Profitability Analysis

Standalone (%)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 12.21 11.68 13.64 13.95  13.52 
Net Profit Margin Ratio 8.76 8.64 10.00 9.88  9.41

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Share Capital 21.25 21.25 21.25 21.25 21.25 
Reserves & Surplus 522.89 625.61 766.60 916.28 1,086.39 
Net worth (shareholders funds) 544.14 646.86 787.85 937.53 1,107.64 
Current liabilities 251.76 229.57 294.00 396.94 472.48 
Other long term liabilities and provisions 29.43 57.34 39.16 43.95 
Deferred Tax Liabilities 1.25 – 
Total Liabilities 795.90 907.11 1,139.19 1,373.63 1,624.07

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Fixed Assets 81.01 109.18 99.52 99.95  111.29
Current assets 708.69 775.05 1,002.90 1,226.11 1,444.62
Long term advances and other noncurrent assets 22.88 35.49 41.04 59.59
Deferred Tax Assets 6.20 1.28 6.53   8.57
Total assets 795.90 907.11 1,139.19 1,373.63 1,624.07

Efficiency Analysis

 
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
ROCE 32.32 31.20 34.06 33.31  33.09
ROE / RONW 22.12 22.37 25.19 24.42  23.44

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Standalone
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 1,652.69 2,296.89 2,288.64 2,628.42  2,938.69 
Growth (%) 11.86 % 38.98 % (0.36 %) 14.85 %  11.80 % 
PAT (Rs. Cr.) 144.70 198.45 228.96 259.63  276.65
Growth (%) 20.19 % 37.15 % 15.37 % 13.40 %  17.02%
Earnings Per Share – Basic (Rs. ) 68.10 93.39 107.75 122.18  130.19 
Earning Per Share – Diluted (Rs. ) 68.10 93.39 107.75 122.18  130.19 
Price to Earnings 21.81 26.43 44.99 38.53  30.78 

Dividend History

The Company has maintained an average dividend yield of 1.04% over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Abbot’s average current ratio over the last 5 financial years has been 3.08 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Abbot’s average long term debt to equity ratio over the last 5 financial years has been 0.00 times which indicates that the Company operates with zero level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since Abbot operates with very low levels of debt, it has maintained a high average interest coverage ratio of 4478.63 times over the last 5 financial years which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2016, Abbott India reported a promoter holding of 74.99 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 8.33 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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