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Pfizer: All businesses deliver

Aug 25, 2011

Pfizer India has announced its first quarter results for 2011-12 (1QFY12) results. The company has reported 16.2% and 18.9% growth in sales and net profits respectively. Here is our analysis of the results.

*The company has changed its accounting year from 1st December - 30th November to 1st April-31st March. The current quarter is from 1st April, 2011 to 30th June, 2011 while the previous quarter was from 1st March, 2010 to 31st May, 2010. Hence the figures are strictly not comparable.

Performance summary
  • Sales grow by 16.2% YoY led by both its animal health and services business.
  • Operating margins decrease by 0.1% to 16% due to increase in other expenditure (as percentage of sales)
  • Net profits increase by 18.9% YoY due to lower tax rate when compared with the quarter ended May 2010

Financial performance: A snapshot
(Rs m) Quarter end May, 2010 Quarter end June, 2011 (1QFY11) Change
Net sales 2,248 2,612 16.2%
Expenditure 1,886 2,193 16.3%
Operating profit (EBIDTA) 362 419 15.7%
EBDITA margin (%) 16.1% 16.0%  
Other income 215 220 2.6%
Depreciation 22 24 5.9%
Interest - -  
Profit before tax 555 616 11.0%
Tax 195 204 4.1%
Exceptional Gain / (Loss) (12) -  
Forex Gain / (Loss) - -  
Minority Interest - -  
Profit after tax/(loss) 347 412 18.9%
Net profit margin (%) 15% 16%  
No. of shares (m) 30 30  
Diluted earnings per share (Rs) 12 14  
Price to earnings ratio (x)*   28  
*On trailing 12 month basis

What has driven the performance in 1QFY12?
  • Sales grew by 16.2% YoY led by both its animal health and services business. Pfizer has 3 divisions -Pharmaceuticals, Animal health and services. The pharmaceutical division is the biggest revenue contributor and grew by 10% YoY. The animal health segment (contributes ~12% to sales) grew by 14% YoY and the service income (contributes ~7% to sales) grew by 58.7% YoY. The higher service income was on account of Pfizer selling Wyeth's products.
  • In the pharmaceutical business, Pfizer has also started introducing products in the branded generics space since 2009. Currently the branded generics segment contributes around 4% to the net sales and is expected to increase to 10% in the next 3 years. The management indicated speeding up product launches in this category.
  • Revenue break-up
    (Rs m) Quarter end May, 2010 Quarter end June, 2011 (1QFY11) Change
    Pharmaceuticals 1,914 2,104 10.0%
    Animal Health 276 315 13.9%
    Services 120 190 58.7%
    Total Sales 2,310 2,609 13.0%

  • The operating margins decreased by 0.1% to 16% led by the increase in other expenditure from 28.2% of net sales to 29.1% this quarter. This was partly offset by lower raw material and employee cost.

  • Net profit increased by 18.9% YoY, higher than the sales growth, as the tax rate for the quarter was lower than in the quarter ending May 2010.

What to expect?

The company had invested in creating 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 1,000). Pfizer has also been incurring higher expenses to promote its products. 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. We expect that Pfizer will start getting the benefits of its past efforts in a span of one year.

At the current price of Rs 1,374, the stock is trading at a multiple of 17.9 times our estimated FY14 earnings. However, even after taking into account the future growth prospects, current valuations do not leave much on the table for investors.

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Aug 5, 2020 03:19 PM