Stock Pick From The Healthcare Sector

Here is why:

• Consistent dividend payments for the last 10 years
• Brand recognition among doctors to help with better growth
• Available at a TTM PE of 23.15x

What is your take on a company which has delivered a topline and bottomline growth of 22 per cent and 16 per cent respectively on a five year CAGR basis ending CY12? The company has paid dividend on a consistent basis for the last 10 years and also given a return of 12 per cent in CY13. To add to this the company is also debt free. So what would your answer be? 

Well the answer certainly should be that this is one company to be looked at. Here we present to you Abbott India (AIL), the Indian subsidiary of Abbott Laboratories USA as our choice scrip for this issue. If you are asking why read on to know more.

AIL is an arm of a multinational pharmaceutical giant which has presence in therapeutic segments like women's health, gastroenterology, neurology, thyroid, diabetes & urology pain management, vitamins, anti-invectives’ & other therapy areas. On the product front, ten Abbott India products are among the Top 300 brands in Indian Pharmaceutical Market (IPM). Their products like Digene, continues to be the number one prescribed Antacid, the sales of which is generated by the 5.5 million prescriptions annually. The other brand Vertin jumped 13 positions from 112 in January 2012 to 99 in November 2012 and entered the Top 100 brands in IPM.

The reach and the spread of the company increased by manifold after it made two successful acquisitions in the year 2009 and 2010. In 2009, the parent acquired Solvay Pharmaceuticals for USD 6.6 billion and in the year 2010, the Indian arm acquired Piramal Healthcare’s healthcare solution business for USD 3.7 billion. These two acquisitions have given the company a strong foothold in the lucrative diabetic and neurology market.

On the product front, as per AIOCD AWCS September 2013 MAT data, its top ten brands accounted for 56 per cent of its revenues. Seven of these top ten brands grew faster than the market. These were Duphaston (13.2 per cent), Thyronorm (+15.5 per cent), Vertin (+15.5 per cent), Duphalac (+12.9 per cent), Digene (+8.0 per cent), Pediasure (+8.3 per cent) and Cremaffin (+7.2 per cent). These products going forward are likely to be the growth drivers for the company.

On the financial front, in the last reported quarter of September 2013, AIL reported a growth of 10 per cent on YoY basis to post a revenue of Rs 456 crore as against Rs 417 crore reported during the same quarter last fiscal. This growth is higher than the industry growth of 6.8 per cent. The EBIDTA margins of the company improved by 110 bps on YoY basis to 14.3% as a result of overall reduction in costs. AIL’s net profit grew 18% on YoY to Rs 45.2 crore from Rs 38.3 crore due to margin improvement, higher other income and lower depreciation. 

On the valuation front, the stock is trading at a TTM PE of 23.15x which is cheaper than its other listed peers. With brands delivering better growth going forward one can look at the stock with a price target of Rs 1910 for one year time horizon.