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Pfizer: Sales grow faster than MNC peers - Views on News from Equitymaster
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Pfizer: Sales grow faster than MNC peers
Feb 26, 2010

Performance summary
  • Sales grow by a decent 14% YoY during CY09 (November ending fiscal) led by both its pharmaceutical and animal health businesses.
  • Operating margins fall by 1.7% during the year due to a rise in raw material and staff costs (as percentage of sales).
  • The bottomline during CY09 declines by 54% YoY largely due to the extraordinary income received in CY08. On excluding the same, the fall in net profits is much lower.
  • Board recommends a dividend of Rs 12.5 per equity share (dividend yield of 1.4%).

Financial performance: A snapshot
(Rs m) 4QCY08 4QCY09 Change CY08 CY09 Change
Net sales 1,848 2,030 9.8% 7,006 7,960 13.6%
Expenditure 1,581 1,727 9.3% 5,494 6,377 16.1%
Operating profit (EBIDTA) 268 303 13.2% 1,513 1,582 4.6%
Operating profit margin (%) 14.5% 14.9%   21.6% 19.9%  
Other income 201 146 -27.2% 705 710 0.7%
Depreciation 44 21 -51.9% 111 83 -25.5%
Profit before tax 424 428 0.9% 2,107 2,210 4.9%
Exceptional items (expense) (8) (44)   2,079 (109)  
Tax 114 129 12.5% 1,194 729 -39.0%
Profit after tax 303 255 -15.6% 2,991 1,372 -54.1%
Net profit margin (%) 16.4% 12.6%   42.7% 17.2%  
No. of shares (m)       29.8 29.8  
Diluted earnings per share (Rs)         46.0  
P/E ratio (x)         19.9  

What has driven performance in CY09?
  • During CY09, Pfizer’s topline grew by a decent 14% YoY led by its pharmaceuticals (up 12% YoY) and animal health (up 27% YoY) businesses. Growth in the pharma business could be attributed to the strong performance of its key brands ‘Corex’, ‘Becosules’ and ‘Gelusil’ all of which recorded double digit growth. While volumes of the pharma business grew by 10% YoY, price increased by 4% YoY. The company also launched 4 new products during the year, which will start contributing to revenues going forward.

    Segmental performance
    (Rs m) 4QCY08 4QCY09 Change CY08 CY09 Change
    Pharmaceuticals (incl. services) 1,554 1,696 9.1% 5,948 6,659 12.0%
    PBIT margin (%) 18.9% 17.7%   62.6% 24.6%  
    Animal health (incl. services) 209 254 21.8% 832 1,058 27.2%
    PBIT margin (%) 18.4% 14.6%   21.3% 19.5%  
    Services - Clinical            
    Development Operations 81 67 -18.3% 216 221 2.1%
    PBIT margin (%) 7.2% 9.3%   9.0% 9.2%  
    Total revenues 1,845 2,016 9.3% 6,996 7,937 13.5%
    Total PBIT margin (%) 18.3% 17.0%   56.0% 23.5%  

  • Pfizer’s operating margins fell by 1.7% during CY09 led by rise in raw material and staff costs (as percentage of sales). The rise in raw material costs was due to the increase in Vitamin C prices. Further, because vitamins fall under price control, the increase in raw material costs could not be passed on in the form of higher prices, thereby exerting pressure on margins. Staff costs increased during the year due to the addition of people to its field force.

  • Net profits fell by 54% YoY during the year. However, this was on account of the extraordinary income that the company received in CY08 on account of the sale of four consumer health brands to Johnson & Johnson. Thus, if one excludes this extraordinary income and the tax thereon during CY08, then the bottomline declined by around 1% during CY09.

What to expect?
At the current price of Rs 916, the stock is trading at a multiple of 17.1 times our estimated CY11 earnings. Pfizer’s operating margins are expected to be under pressure going forward as higher raw material costs continue to play spoilsport. The company has forayed into branded generics in a bid to gain access to a wider market and bolster sales. Two products have already been launched in this category. Pfizer is also looking to increase its reach to doctors and the focus will be more on metros and tier I, II, III and IV cities before it ventures into rural areas. We shall soon update our research report on the company.

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