BUY Abbott India for Long Term: Nirali Shah, SAMCO Research
ABBOTT India is a good long term investment for Indian investors as per Nirali Shah, SAMCO Research. Excellent Parent - Abbott Laboratories (US Promoter) continues to hold 74.99% of Abbott India since September’11 which provides the Indian company thorough touches of MNC’s professionalism and disciplined capital allocation.
Please note that this is a long term investment with more than 5 years holding period. (CMP range: Rs 13175 - 13180)
Improving Operational Efficiency - The Company has subtly improved its working capital management which is visible from the decreasing cash conversion cycle which means that company is able to operate in normalcy with least money involved. Moreover, rigorous restructuring of its portfolio into key niche business areas has aided the MNC to consistently achieve market-beating performance.
Resilient Financials - Efficiently generated positive free cash flow over the past 5 years, thus improving its free cash flows as a percentage of sales. Over the years, the company has operated with a net-debt free structure having more than sufficient cushion of cash. This makes Abbott best suitable in times of downturns in business.
Dividend Streak - Management has since the year 2007 been consistently rewarding shareholders by distributing nearly fourth of its earnings in the form of dividends.
Current Standing - Company’s focus to remain at the forefront of providing diverse medicines and innovative services over the years has led Abbott India’s 6 brands to appear in the list of top 100 brands of Indian Pharmaceutical Market (IQVIA). Further, 9 of top 10 brands are leaders in their respective participated market (IQVIA).
Strategic Capital Allocation - Due to quality structured product portfolio and revenue, Abbott India has been able to increase its operating profit margin since FY2014. Returns on its equity or capital employed or on invested capital is also continuously improving.
Satisfied Employees - Commitment of management to impart structured and specialized knowledge to its human resources has led to one of the lowest employee attrition rates in the industry.
Declining R&D Spend - The position which Abbott India has unfathomably achieved is due to understanding and critical execution of research done in prior years. Monies spent on research and development over the years as a percentage of total sales has been seen declining, this may have an impact on future growth trajectory.
Concentration on Indian Pharma - Abbott India caters majorly to the Indian markets.
This has made it's revenue more elastic in terms of decisions taken by Indian government on any price cap front. Also, Indian Government's decision to provide quality medicines at affordable prices to the masses (Jan Aushadhi Scheme) may puncture quality sustained earnings.