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Pfizer India: Not a bad end to the year - Views on News from Equitymaster
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Pfizer India: Not a bad end to the year
May 16, 2013

Pfizer India has announced its 4QFY13 results. The company has reported 3.3% YoY growth in total income from operations and 21% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 3.3% YoY during the quarter. The core pharmaceutical business witnesses growth of 10% YoY for the said period.
  • Operating margins increase marginally by 0.6% to 19.2% in 4QFY13, leading to the 6.8% YoY growth in operating profits for the quarter.
  • Bottomline increases by 21% YoY during 4QFY13. However, this is helped by increase in other income and decrease in depreciation charges.

Financial snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 2,517 2,522 0.2% 10,173 9,480 -6.8%
Other operating income 210 296 40.8% 760 1,021 34.4%
Expenditure 2,219 2,275 2.5% 8,980 8,630 -3.9%
Operating profit (EBDITA) 508 542 6.8% 1,953 1,871 -4.2%
EBDITA margin (%) 18.6% 19.2%   17.9% 17.8%  
Other income 246 311 26.8% 927 1,052 13.5%
Interest (net) 4 (1)   6 2 -59.3%
Depreciation 23 19 -17.2% 96 80 -16.1%
Profit before tax 727 835 14.9% 2,779 2,841 2.2%
Exceptional Item - 6   (4) 4,097  
Tax 245 260 6.0% 929 1,906 105.1%
Profit after tax/(loss) 482 581 20.6% 1,846 5,032 172.6%
Net profit margin (%) 19.1% 23.1%   18.1% 53.1%  
No. of shares (m)         29.8  
Diluted earnings per share (Rs)         168.6  
Price to earnings ratio (x)*         6.5  
*based on trailing 12 months earnings

What has driven performance in 4QFY13?
  • Pfizer's topline grew by 3.3% YoY during the quarter. Topline was impacted due to the sale of the animal business. Excluding the revenues from the animal business, the topline grew by approx 19% YoY for the quarter. Some part of this growth was also attributed to other operating income which grew by 41% YoY for the said period. Adjusting towards other operating income, the net sales (excluding animal business) grew by 17%YoY. The core pharmaceutical business witnessed growth of 10% YoY for the said period.

  • Operating margins increased marginally by 0.6%, leading to the 6.8% YoY growth in operating profits. Inspite of some improvement in operating margins, the Pharmaceutical segment margins declined by 5% for the quarter. However, other businesses witnessed better operating margins. Operating expenditure of the company also increased marginally by 2.5% YoY for the quarter. This helped in the improvement in overall margins for the company.

  • Bottomline increased by 21% YoY during 4QFY13. However, this was helped by increase in other income, decrease in depreciation charges and exceptional gain. Excluding exceptional gain, the bottom line grew by 19.4% YoY.

What to expect?
At the current price of Rs 1,100, the stock is trading at a multiple of 17.9 times our estimated FY15 earnings. The company had invested in creating a pipeline of over 20 branded generics products in the past 2 years and has also increased the field force (in last 2 years field force is up by 1,400). The company is also focusing on improving its field force productivity, by targeting quality launches this will help in rationalizing the costs ahead. It also intends to enter into newer segments such as CNS and diabetes. The company is aggressively promoting Prevnar 13 vaccine (only vaccine in India for pneumococcal disease) to get incremental revenues.

On the negative side, higher dependence on 4 of its brands is a concern. Further fall in margins for the core pharma business, is also a negative. Over and above going forward the company's revenues will be impacted by the new pricing policy when it comes into force. After taking into account the future growth prospects, we recommend a 'Hold rating' on Pfizer.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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