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Pfizer: Strong finish to the year - Views on News from Equitymaster
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Pfizer: Strong finish to the year
Jan 17, 2011

Pfizer India has announced its 4QCY10 results. The company has reported 29% YoY and 72% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 29% YoY during 4QCY10 (November ending fiscal) led by its pharmaceutical and animal health businesses.
  • Operating margins improved by 3.5% during the quarter due to a fall in staff costs and other expenditure (as percentage of sales).
  • Strong growth in operating profits coupled with higher other income leads to the healthy 72% YoY growth in the bottomline.


Financial performance: A snapshot
(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net sales 2,030 2,610 28.6% 7,966 9,287 16.6%
Expenditure 1,726 2,127 23.2% 6,385 7,401 15.9%
Operating profit (EBIDTA)    304    483 58.8% 1,582 1,886 19.2%
Operating profit margin (%) 15.0% 18.5%   19.9% 20.3%  
Other income    147    203 38.8%    711    732 3.1%
Depreciation      21      24 13.1%      83      94 13.5%
Profit before tax    430    662 54.2% 2,209 2,524 14.2%
Tax    131    224 70.2%    731    862 17.8%
Exceptional items    (44)      (3)     (109)    (30)  
Profit after tax    254    436 71.6% 1,369 1,632 19.2%
Net profit margin (%) 12.5% 16.7%   17.2% 17.6%  
No. of shares (m)         29.8   29.8  
Diluted earnings per share (Rs)           54.7  
P/E ratio (x)           22.7  

What has driven performance in 4QCY10?
  • During 4QCY10, Pfizer's topline grew by 29% YoY led by its pharmaceuticals (up 21% YoY) and animal health (up 19% YoY) businesses. Growth in the pharma business was largely due to the strong performance of its top ten products, which grew in healthy double digits. The company's prescription to OTC business also did well with its flagship brand ‘Gelusil' reporting a growth of 24% YoY. Pfizer also made strong inroads in the branded generics space by launching around 8 products in the market. Overall, new products launched during the year accounted for 3% of sales. For the full year, the pharmaceuticals and animal health businesses grew by 15% YoY and 10% YoY respectively.

    Segmental performance
    (Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
    Pharmaceuticals (incl. services) 1,696 2,056 21.3% 6,661 7,667 15.1%
    PBIT margin (%) 17.6% 26.7%   24.6% 28.2%  
    Animal health (incl. services)    254    302 18.9% 1,062 1,167 9.9%
    PBIT margin (%) 14.9% 8.6%   19.5% 16.4%  
    Services - Clinical             
    Development Operations      67    249 274.6%    221    511 131.4%
    PBIT margin (%) 9.3% 12.4%   9.2% 11.9%  
    Total revenues     2,016     2,608 29.3%      7,944     9,346 17.6%
    Total PBIT margin (%) 17.0% 23.2%   23.5% 25.8%  

  • Pfizer's operating margins expanded by 3.5% during 4QCY10 led by a fall in staff costs and other expenditure (as percentage of sales). Staff costs fell from 16% of sales in 4QCY09 to 15.1% of sales in 4QCY10. While other expenditure saw a considerable dip of 4.5% to 33.6% during the quarter. Raw material costs (as a percentage of sales), however, saw a rise from 30.9% of sales in 4QCY09 to 32.8% this quarter. This was largely due to higher sales of ‘Becosules' which has higher raw material consumption. For the full year, operating margins improved marginally by 0.4% to 20.3%. This was, however, due to lower raw material costs.

  • Led by the healthy 59% YoY growth in operating profits and higher other income, net profits grew by an impressive 72% YoY. For the full year, growth in net profits was in tandem with growth in operating profits at 19% YoY.

What to expect?
At the current price of Rs 1,239, the stock is trading at a multiple of 19.8 times our estimated CY12 earnings. Pfizer's operating margins are expected to be under pressure going forward as higher raw material costs play spoilsport. The company has forayed into branded generics in a bid to gain access to a wider market and bolster sales. This strategy will augur well for the company going forward given that most global MNCs have dwindling R&D pipelines as a result of which the scope for launching patented products is low. Pfizer is also looking to make quite a few investments in 2011 which will be for field force expansion, marketing & distribution and on entry strategies for different products and markets. The company has performed slightly better than our estimates for the full year and we shall have to upgrade our numbers accordingly. We shall soon update our research report on the company.

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