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AstraZeneca Pharma Equity Research

HomeCompanyAstraZeneca Pharma Equity Research

 

Date of Research – 12 January 2016

Price – Rs. 1,281.40

AstraZeneca Pharma India Limited (“AstraZeneca” or the “Company”) is the Indian arm of AstraZeneca Plc, UK, and has been present in India since 1979. The Company is involved in both the manufacturing and marketing of medicines. The Company has interests in seven crucial areas of healthcare: Cardiovascular; Diabetes; Respiratory; Maternal Healthcare; Oncology; Infection; Neuroscience and Gastrointestinal. AstraZeneca manufacturing facilities are spread across 64 acres at Bengaluru, and commenced commercial production in 1982.

The Company is currently setting-up a state-of-the-art tablet manufacturing facility with a capacity of 1.2 billion tablets per year at a cost of Rs. 1,000 million. AstraZeneca has been regularly launching products in India over the past years, leading to the development of several domestic power brands including Crestor, Seloken XL, Meronem, Arimidex, Zoladex, Neksium and most recently Brilinta.

In FY 2011, the Company has changed its financial year period from January – December to April – March. As such, the figure for financial year ended March 2011 contains figures for 15 months and can’t be compared.

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 390.42 473.97 517.07 563.73  539.57 
Expenses 458.88 486.94 528.48 547.32  510.18  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) (68.45) (12.97) (11.41) 16.42  29.39
Depreciation 12.28 10.13 15.28 17.43  15.83  
Finance Costs –  – 
Other income 10.46 9.21 5.85 6.77  19.64  
PBT (70.27) (0.00) (20.84) 5.76  33.21  
Tax 19.26 0.51 0.51  8.76  
PAT (before Minority Interest and share of Associates) (89.53) (0.51) (20.84) 5.26  24.44  

Profitability Analysis

Standalone (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio (17.53) (2.74) (2.21) 2.91  5.45 
Net Profit Margin Ratio (22.93) (0.11) (4.03) 0.93  4.53 

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 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 5.00 5.00 5.00 5.00 5.00
Reserves & Surplus 184.29 94.75 166.60 145.76 151.01
Net worth (shareholders funds) 189.29 99.75 171.60 150.76 156.01
Current liabilities 155.08 205.86 243.50 259.82 248.44
Other long term liabilities and provisions 0.54 0.49 0.49 1.02 1.27
Total Liabilities 344.91 306.10 415.59 411.59 405.72

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 90.18 98.24 103.53 113.19 103.67
Noncurrent Investments 0.01 0.01
Current assets 194.58 164.81 272.64 263.26 268.28
Long term advances and other noncurrent assets 42.38 43.04 39.42 35.14 33.77
Deferred Tax Assets 17.76
Total assets 344.91 306.11 415.59 411.59 405.72

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 15.99 (68.62) (7.56) (7.57) 10.52 
ROE / RONW 10.44 (89.75) (0.30) (13.82) 3.37 

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 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 390.42 473.97 517.07 563.73  539.57 
Growth (%) (26.55 %) 21.40 % 9.09 % 9.02 %  (4.29 %) 
PAT (Rs. Cr.) (89.53) (0.51) (20.84) 5.26  24.44  
Growth (%) (552.86 %) 125.24 %  364.68 % 
Earnings Per Share – Basic (Rs. ) (35.81) (0.20) (8.34) 2.10  9.78 
Earning Per Share – Diluted (Rs. ) (35.81) (0.20) (8.34) 2.10  9.78 
Price to Earnings 550.79  93.56 

Dividend History

The Company has not declared any dividend over the last 3 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. AstraZeneca’s average current ratio over the last 5 financial years has been 1.19 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. AstraZeneca’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 debt.

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. The Company has no interest obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, AstraZeneca reported a promoter holding of 75.00 %. 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 14.06 % (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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