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Pfizer: Pharma business delivers

Jul 13, 2010

Pfizer India has announced its 2QCY10 results. The company has reported 16% YoY and 11% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 16% YoY during 2QCY10 (November ending fiscal) led by its pharmaceutical business.
  • Operating margins fall by 0.9% during the quarter due to a rise in staff costs and other expenditure (as percentage of sales).
  • The bottomline during 2QCY10 grows by 11% YoY in tandem with growth in operating profits.

Financial performance: A snapshot
(Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
Net sales 1,927 2,235 16.0% 3,829 4,310 12.6%
Expenditure 1,597 1,872 17.2% 3,063 3,431 12.0%
Operating profit (EBIDTA) 330 362 9.9% 766 879 14.8%
Operating profit margin (%) 17.1% 16.2%   20.0% 20.4%  
Other income 221 215 -2.8% 406 370 -9.1%
Depreciation 21 22 4.2% 41 45 8.9%
Profit before tax 529 555 4.8% 1,131 1,204 6.5%
Tax 172 195 13.5% 384 420 9.5%
Exceptional items (44) (12)   (44) (12)  
Profit after tax 313 347 10.9% 703 771 9.7%
Net profit margin (%) 16.2% 15.5%   18.4% 17.9%  
No. of shares (m)       29.8 29.8  
Diluted earnings per share (Rs)         48.2  
P/E ratio (x)         25.5  

What has driven performance in 2QCY10?
  • During 2QCY10, Pfizer's topline grew by 16% YoY led by its pharmaceuticals (up 16% YoY) business. Growth in the pharma business could be attributed to the strong performance of its key brands ‘Corex', ‘Becosules' and ‘Gelusil'. The clinical operations business also did well to report a growth of 66% YoY during the quarter. However, the performance of the animal health business was rather tepid, as this business reported a growth of 5% YoY. For the first half of the year, the pharmaceuticals and animal health businesses grew by 12% YoY and 7% YoY respectively.
    Segmental performance
    (Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
    Pharmaceuticals ( 1,596 1,847 15.7% 3,179 3,573 12.4%
    PBIT margin (%) 20.3% 22.3%   24.7% 26.4%  
    Animal health (incl. services) 263 276 5.3% 539 576 6.8%
    PBIT margin (%) 21.0% 23.0%   21.6% 25.4%  
    Services - Clinical            
    Development Operations 64 107 66.3% 105 153 46.6%
    PBIT margin (%) 25.3% 13.3%   18.8% 12.0%  
    Total revenues 1,923 2,230 16.0% 3,823 4,303 12.5%
    Total PBIT margin (%) 20.6% 22.0%   24.1% 25.8%  

  • Pfizer's operating margins fell by 0.9% during 2QCY10 led by a rise in staff costs and other expenditure (as percentage of sales). Staff costs increased from 16.5% of sales in 2QCY09 to 22.3% of sales in 2QCY10. Raw material costs (as a percentage of sales), however, saw a sharp fall from 26.2% of sales in 2QCY09 to 20.1% this quarter. For the half year, operating margins remained stable at 20%. Once again staff costs and other expenditure increased during this period.

  • Net profits grew by 11% YoY during the quarter largely in line with the growth in operating profits. However, on excluding the extraordinary expenses during both the periods, growth in net profits was flat due to lower other income and higher tax expenses.

What to expect?
At the current price of Rs 1,229, the stock is trading at a multiple of 20.1 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. 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. Current valuations, however, do not leave much on the table for investors.

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