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Pfizer: Topline shines - Views on News from Equitymaster
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Pfizer: Topline shines
Apr 1, 2009

Performance summary
  • Sales grow by a robust 22% YoY during 1QCY09 led by both its pharmaceutical and animal health businesses.
  • Operating margins contract by 2.2% during the quarter due to a substantial increase in raw material costs (as percentage of sales).
  • While the bottomline during 1QCY09 declines by 80% YoY, if one excludes the extraordinary income and the tax thereon during 1QCY08, then the bottomline registers a growth of 10% YoY.


Financial performance: A snapshot
(Rs m) 1QCY08 1QCY09 Change
Net sales 1,557 1,902 22.2%
Expenditure 1,166 1,466 25.8%
Operating profit (EBIDTA) 392 436 11.4%
Operating profit margin (%) 25.1% 22.9%
Other income 128 185 45.3%
Depreciation 22 20 -10.3%
Profit before tax 497 602 21.1%
Exceptional items (expense) 2,099 -
Tax 667 212 -68.3%
Profit after tax 1,929 390 -79.8%
Net profit margin (%) 123.9% 20.5%
Net profit margin (excl. extraordinary items) 18.6% 20.5%
No. of shares (m) 29.8 29.8
Diluted earnings per share (Rs) 48.7
P/E ratio (x)* 12.0
(*On a trailing 12-month basis)

What has driven performance in 1QCY09?
  • During 1QCY09, Pfizer’s topline grew by a robust 22% YoY. This was led by its pharmaceuticals (up 21% YoY) and animal health (up 22% YoY) businesses. While the company has not yet divulged details, growth in the pharma business could be attributed to the strong performance of its key brands ‘Corex’, ‘Dolonex’ and ‘Minipress’ all of which would have recorded a double digit growth.

    Segmental performance
    (Rs m) 1QCY08 1QCY09 Change
    Pharmaceuticals (incl. services) 1,304 1,583 21.4%
    PBIT margin (%) 30.0% 29.2%
    Animal health (incl. services) 201 277 38.0%
    PBIT margin (%) 21.4% 22.1%
    Services - Clinical
    Development Operations 51 40 -21.1%
    PBIT margin (%) 29.9% 8.4%
    Total revenues 1,556 1,901 22.2%
    Total PBIT margin (%) 28.9% 27.7%

  • Pfizer’s operating margins shrunk by 2.2% during 1QCY09, which was largely due to the rise in raw material costs (as percentage of sales) from 21.7% in 1QCY08 to 26.4% in 1QCY09. The rise in raw material costs could be attributed 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. Pfizer had faced this problem in 4QCY08 too, wherein the company had opined that it did not expect this scenario to ease in the coming quarters. Thus, margins are likely to come under pressure.

  • While the bottomline during 1QCY09 declined by 80% YoY, if one excludes the extraordinary income and the tax thereon during 1QCY08, then the bottomline clocked a growth of 10% YoY. The extraordinary income that the company received in the corresponding quarter last year was on account of the sale of four consumer health brands to Johnson & Johnson.

What to expect?
At the current price of Rs 572, the stock is trading at a price to earnings multiple of 11.3 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. As far as new product launches are concerned, the company has some lined up for the second half of CY09 although none of them will be patented in India. 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 maintain our positive view on the stock.

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