Since 1910, Abbott India Limited has been dedicated to helping people in India live healthier lives through a diverse range of science-based nutritional products, diagnostic tools, branded generic pharmaceuticals, and diabetes and vascular devices. Headquartered in Mumbai, Abbott India Limited, a subsidiary of Abbott Laboratories, offers high-quality trusted medicines and is one of India's fastest-growing pharmaceutical companies. The company has expertise across product development, manufacturing, sales and customer service, and is dedicated to provide high-quality, reliable products with the expert clinical support that its customers need.
It believes in providing quality healthcare through a mix of global and local products for people in India. The company’s in-house development and medical teams undertake product and clinical development tailored to the unique needs of the Indian market. Abbott’s employees work to produce high-quality, high-volume formulations using cost efficient processes and its trained personnel are dedicated to ensuring compliance with international quality standards.
The company provides products and solutions across various therapeutic areas such as:
Women’s Health: The company offers a mix of global and India-specific brands across pregnancy and other women’s health related products. Some of the key brands are Duphaston (Miscarriage and Infertility), Letrolife (Ovulation), Cystofert (Polycystic Ovary Syndrome), Pro 9 (Preterm Birth), Solfe (Iron Deficiency), Arachitol O (Calcium & Vitamin D3 Deficiency).Duphaston has been growing well in this segment.
Gastroenterology: The company offers several key products under this therapeutic area. Some of them are Udiliv (Liver disease), Duphalac (Constipation), Cremaffin and Cremaffin Plus (Constipation), Ganaton (Dismotility), Creon, (Pancreatic Exocorine Insufficiency (PEI)), Rowasa (Inflammatory Bowel Disease) and Heptral (Liver disease).
Metabolics: Thyronormretains the flagship position in its segment and growth of this therapeutic area has been sustainable.During the year, 4 new products - Methimercazole (Hyperthyroidism), Thyronorm 37.5 (Hypothyroidism),Tenefron (Type 2 Diabetes) and Tenefron M/M Forte (Type 2 Diabetes) were launched.
Central Nervous System: This therapeutic area showed a negative growth of 1.4%. Vertin (Vertigo) and Prothiaden (Depression) continue to be market leaders in their market segment. During the year, Inderal F (Migraine Prophylaxis) was launched.
Multi-Speciality: Under Multi-Specialty, the company offers products for Pain Management, Nutritional supplements, Vitamins and Insomnia. The key brands include Brufen (Pain killer), Duvadilan (Preterm birth), Zolfresh (Insomnia management), Arachitol Nano (Vitamin D3 deficiency) and Digecaine (Anesthetic antacid).
Vaccines: The company has a licensing arrangement with Bharat Biotech India Limited to market vaccines in the immunology segment. The key brands in vaccines portfolio are Influvac (Influenza), Enteroshield (Typhoid) and Rotasure (Rotavirus Diarrhea).The growth was mainly driven by Influvac, a number 1 product in its participated market.
Consumer Health: The company offers a few consumer directed products. It promotes all variants of Digene (antacid – antiflatulent) - tables, liquids and powders
Rationale for Investment
New product Launches: The company has launched 16 new products in FY 19 on the back of innovation and agility. Some of these products are doing extremely well, displaying potential for even further growth. With increasing consumerization in healthcare, it is going to launch 12-14 new products in FY20. The company is also focussed on taking a few of its existing brands on the OTC platform. Additionally, its consumer health portfolio, led by Digene, is going through a tremendous turnaround.
Strong brand recall: The company’s outperformance can be attributed to its brand strength and the complexity involved in making some of its key products. There is limited competition and a strong brand recall for its existing products which has helped the company to perform well even though some products are under price control.
Focus on high growth segments: The company has restructured its portfolio into key business areas like women’s health, gastroenterology, consumer care, CNS, metabolics, general care and vaccines to achieve a market-beating performance during the past few years. The company is readying with a new set of products in niche therapy areas like Menopause and liver disease, which should boost growth.
Reducing dependence on third party manufacturing: It aims to reduce dependence on third party manufacturing (from current ~60% of sales to 30% in the next three years) by shifting key products to own manufacturing facility at Goa. A nominal debottlenecking would be required to accommodate these products at their facility.
Leadership position: Abbott India has a leadership position in 10 brands
and plans to build 10 more to drive growth by entering newer therapy areas like
menopause and liver disease to tap “unmet needs”. It’s readying
to launch as many as 100 products over the next three-five years. Six brands appear
in the list of top 100 brands of Indian Pharmaceutical Market & nine of the
company’s top 10 brands are leaders in their respective participated market.
Entry in New segment: Abbott India distributes Novo Nordisk A/S’ anti-diabetic products in the domestic market, for which it receives a 5 percent margin. Five out of seven distributed products grew faster than the market. Its entry in the nutrition segment would further diversify its product portfolio.
Digital Services: Abbott India has increased focus on going digital and services beyond the pill, which results in a shift from awareness to compliance to lifestyle modification. The programmes contributing growth to Abbott India are 1) acare which provides doctors and consumers with services and information to help people achieve better health 2.) GUTFIT: a unique lifestyle modification programme 3.) BE ‘D’ POSITIVE - A large number of Indians suffer from vitamin D deficiency.
Margin improvement with better return ratios: Abbott India is a debt-free company and has seen its core RoEs improving in FY19. EBITDA margins have recovered due to higher sales of one of its top brands (Thyronorm). There is continued volume led growth in Abbott India’s top brands and intermittent price hikes in its portfolio which provides comfort on overall financials. The company has maintained dividend pay-out in the range of 30%.
India enjoys an important position in the global pharmaceuticals sector. While India ranks tenth globally in terms of value, it is ranked third in volumes. The Indian Pharmaceuticals sector displays unique characteristics. Branded generics comprise 70 to 80 per cent of the retail market. Local players enjoy a dominant position driven by formulation development capabilities and early investments.
According to IQVIA, there are over 10,000 pharma companies that operate in India, employing more than 5,00,000 people and providing medication to 1.3 billion people. Recent pricing pressures in the US have prompted increased focus on the domestic business, leading to sturdy growth. According to McKinsey & Co., five key factors driving growth of IPM are: enhanced medical infrastructure; rise in the prevalence and treatment of chronic diseases; greater health insurance coverage; launches of patented products and market creation in new therapies.
India’s domestic Pharmaceutical Market turnover (without exports) reached Rs 129,015 crores in 2018, growing by 9.4 percent year-on-year. By 2020, the Indian market is expected to be near the top in terms of volumes, a close 2nd behind only the US market.
|Profit Before Taxation||436.49||621.48||698.85||806.94||926.72|
|Provision for Tax||159.84||220.26||248.52||205.85||240.84|
|Profit After Tax||276.65||401.22||450.33||601.09||685.88|
We believe Abbott’s strong track record in power brands and competence of new launches on a fairly consistent basis (100 products in the last ten years) will help propel growth. We further believe that Abbott being one of the top player in the industry it is expected to continue deliver higher growth because of new product launches and increased focus in sub-therapies. We value this company at 46.5x FY21E EPS for target price of Rs 15000.