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Pfizer India: Sales grow but profits dive - Views on News from Equitymaster

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Pfizer India: Sales grow but profits dive

Aug 14, 2014

Pfizer India has announced its 1QFY15results. The company has reported growth of 1% in net sales and a decline of 3% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grows by 1% YoY during the quarter. Excluding animal business which was part of the company’s business in 1QFY14, the growth stood at 10% YoY
  • Operating margins improve by 6.6% to 24.9% in 1QFY14, leading to the 39.2% YoY growth in operating profits for the quarter.
  • Bottomline declined by 3% YoY due to sharp fall in the other income.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 2,375 2,399 1.0%
Other operating income 286 263 -8.1%
Expenditure 2,215 2,039 -7.9%
Operating profit (EBDITA) 447 623 39.2%
EBDITA margin (%) 16.8% 23.4%  
Other income 305 101 -66.9%
Interest (net)  1 1.2 50.0%
Depreciation 20  23 12.4%
Profit before tax 731 700 -4.3%
Exceptional Item - -  
Tax 255 238 -6.6%
Profit after tax/(loss) 476 462 -3.0%
Net profit margin (%) 17.9% 17.3%  
No. of shares (m)    29.8  
Diluted earnings per share (Rs)   73.51  
Price to earnings ratio (x)*   19.0  
*based on trailing 12 months earnings

What has driven performance in 1QFY15?
  • Net sales grew by 10% YoY, after adjusting the animal health business during the quarter. The company continued to face challenges from the new pricing policy, as the government brings more drugs under the pricing control. Though the current quarter was not impacted due to new price notification, the upcoming quarters can be challenge. As per the management, the MNC companies are facing more growth pressures as compared to the Indian domestic companies. The MAT growth till month of June for the Indian pharma companies stood at approx 11% YoY while for the MNC companies the growth was subdued at 3.9% YoY

  • Operating margins witnessed a healthy improvement of 6.6% to 23.4% in 1QFY15. This led to the 39.2% YoY growth in operating profits. This was helped by field force rationalization, and one off expenses included in employee costs.

  • Bottomline declined by 3% YoY due to sharp fall in the other income. The other income is impacted due to lower income from Wyeth, this has impacted the bottom line of the company.
What to expect?
At the current price of Rs 1,346, the stock is trading at a multiple of 15.4 times our estimated FY17 earnings. Pfizer has taken various steps and redesigned its sales force. As per the management, this arrangement will help the company bring down its operating expenses and thus help in improving its field force productivity. The company does not expect to make any major launches from its parent Pfizer Inc’s portfolio. Over and above, higher dependence on four brands continues to remain our concern.

The merger with Wyeth is expected to take place in Nov and post the merger, the books of accounts of both the companies will be consolidated. Pfizer will benefit from Wyeth’s portfolio and this will be positive for the company. However the Indian government is aggressively taking steps to bring the drugs under pricing regulations, and this will have higher impact on the MNC pharma companies. Based on the current valuations, we recommend investors who have the stock in their portfolio can Hold on to the stock.

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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