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Pfizer: Margins expand - Views on News from Equitymaster
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Pfizer: Margins expand
May 3, 2011

Pfizer has announced its FY11 results. The company has reported 55.2%* and 65.4%* growth in sales and net profits respectively. Here is our analysis of the results.

*Note: The Company has changed its accounting year from calendar year (November ending) to financial year (March ending). Hence, the current financial statements are stated for 16 months vs 12 months. For the same reason, the results are not strictly comparable.

Performance summary
  • Sales grow by 12% for 16 months (like to like basis) led by both its pharmaceutical and animal health businesses.
  • Operating margins increased by 1.1% to 20.8% due to a fall in raw material costs and other expenditure (as percentage of sales).
  • The exceptional items decrease by 72.5% to Rs 30 m due to lower expense under VRS.
  • The bottomline during 16 months grows by 12% over 16 months (like to like basis) in tandem with growth in sales.


(Rsm) 3 Months Ended Feb 2010 4 Months Ending Mar 2011 Change 12 months Ended Nov 2009 16 months ended  Mar 2011 Change
Net sales 2,089 3,107 48.7% 8,020 12,446 55.2%
Expenditure 1,571 2,403 52.9% 6,437 9,857 53.1%
Operating profit (EBIDTA) 517.3 703.4 36.0% 1,583  2,589 63.6%
Operating profit margin (%) 32.9% 29.3%   19.7% 20.8%  
Other income 154.8 275.1 77.7% 711 1,007 41.8%
Depreciation 22.9 25.9 13.1% 83 120 44.6%
Profit before tax 649.2 952.6 46.7% 2,210 3,476 57.3%
Tax 224.7 321.2 42.9% 731 1,183 61.8%
Exceptional items 0 0   (109) (30) -72.5%
Profit after tax 424.5 631.4 48.7% 1,369 2,264 65.4%
Net profit margin (%) 20.3% 20.3%   17.1% 18.2%  
No. of shares (m)       29.8 30  
Diluted earnings per share (Rs)*         76  
P/E ratio (x)         17.2  

What has driven the performance in FY11?
  • According to the information provided by the company’s management, the net sales increased by 12% to Rs 12,446 m for 16 months march ended period (as compared to the similar 16 months period last year). The muted growth was due to lower sales growth in few of its top brands including Becosules which significantly contributes to the sales of the company.

  • Pfizer has 3 divisions - Pharmaceuticals, Animal health and clinical research services. The pharmaceutical division is the biggest revenue contributor. Having said that, the contribution of this division has reduced from 83.2% (12 months ended Nov09) to 81.3% (16 months ended Mar11) due to higher growth in clinical services division.

  • In the pharmaceutical business, Pfizer has also started introducing products in the branded generic space since 2009. Currently the branded generics segment contributes around 3% to the net sales and is expected to increase to 10% in next 3 years.

    Segmental performance
    (Rs m) 3 Months Ended Feb 2010 4 Months Ending Mar 2011 Change 12 months Ended Nov 2009  16 months ended Mar 2011 Change
    Pharmaceuticals (incl. services) 1,726 2,512 45.5% 6,661 10,179 52.8%
    PBIT margin (%) 30.0% 27.0%   23.8% 27.9%  
    Animal health (incl. services) 299.7 424.9 41.8% 1,062 1,592 49.9%
    PBIT margin (%) 27.6% 28.3%   19.5% 23.7%  
    Services - Clinical development operations 59.9 228 280.6% 274.1 739.2 169.7%
    PBIT margin (%) 29.2% 8.0%   26.8% 10.7%  
    Total revenues 2,086 3,165 51.7% 7,997 12,510 56.4%
    Total PBIT margin (%) 29.7% 25.8%   23.4% 26.4%  

  • The operating margins increased by 1.1% to 20.8% (16 months ended Mar11) led by the decrease in raw material costs from 37.3% of net sales to 26.6%. As high cost raw materials are used to manufacture Becosules, lower than expected sales of Becosules led to the steep decrease of raw material cost. The improvement in raw material cost was partly reversed by higher employee and the other expenses. On an overall basis, the operating margins (EBITDA) will stabilize at 35%.

  • The exceptional items due to the VRS scheme offered to its employees decreased 72.5% to Rs 30 m.

  • As per the management, the net profit increased by 12% to Rs 2,264 m for 16 months march ended period (as compared to the similar 16 months period last year).

What to expect?
At the current price of Rs 1,310, the stock is trading at a multiple of 17.2 times our estimated CY13 earnings. Pfizer will continue to grow at par with the Indian pharmaceutical market. We are in the process of revising our estimates on Pfizer and will update our subscribers shortly.

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