Portfolio, new launches to help pharma company Abbott India's stock

Firm's revenues were in line with estimates and operational parameters better than expected

The stock of Abbott India, the largest listed multinational pharmaceutical company, hit its highest early February and has added over 25 per cent to its returns since the start of the year. It is trading at Rs 28,145 a share after the company revised its earnings upwards when it achieved its highest operating and net profit in the December quarter. A strong portfolio and brand recognition are expected to aid the company in doing better than the Indian pharma.

Abbott’s December quarter performance was mixed. Revenues were in line with estimates and operational parameters better than expected. It reported year-on-year (YoY) revenue growth of 8.3 per cent, higher than estimates but lower than other similar Indian companies. The top line was aided by a product mix led by therapies.

Categories such as anti-diabetes, vitamins, and hormones grew much faster than the overall average, growing over the previous year (FY23) by 11.2 per cent, 10.8 per cent, and 16.4 per cent. The company reported weak performance in insulin products Mixtard and Novomix, which fell 0.4 per cent and 11.8 per cent over the year-ago quarter. The National List of Essential Medicines (NLEM) lowered prices, but the impact was offset by a Wholesale-Price-Index-related hike of 12 per cent. About a quarter of Abbott’s products are under the NLEM.

The company reported a 45 basis points sequential expansion in gross margins given the change in product mix with a higher share of vitamins and hormones and a fall in raw material prices. Operating profit grew to an all-time high in a quarter to Rs 443 crore and was up 22.5 per cent YoY. What aids its performance at the operating level is the fact that chronic drugs account for 70 per cent of its portfolio and are more profitable than drugs for the acute category.

Operating profit margins too were at a quarterly record of 27 per cent, which was up 312 basis points YoY and 149 basis points on a sequential basis. Strong performance in operations led to the highest-ever net profit of Rs 310 crore, which was 26 per cent more than the year-ago quarter.

Brokerage firm Sharekhan Research expects Abbott will continue its performance due to its strong and diversified portfolio of more than 125 products. The company’s top 10 products account for 70 per cent of revenues and top 20 contribute 90 per cent to sales.

The company has introduced 10-15 new products in the past five years and plans 75 launches in the next five years. Product launches and controlled cost measures are expected to boost performance, said Sharekhan Research. The brokerage has increased its earnings forecast for Abbott by 3-4 per cent for FY24, FY25, and FY26. It has a buy rating with a target price of Rs 30,540 a share.

Axis Securities too has a buy rating on the Abbott stock, with a target price of Rs 28,400 a share. Ankush Mahajan, an analyst with the brokerage, said that the company's 'beyond the pill' strategy of consumer education, diagnosis, treatment and compliance, is expected to give it continued growth. Abbott is growing 1.6 to 1.8 times faster than the Indian pharma market due to the company’s high brand recognition and product portfolio, said the brokerage.