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Pfizer India: Operating margins step up - Views on News from Equitymaster

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Pfizer India: Operating margins step up

Sep 24, 2013

Pfizer India has announced its 1QFY14 results. The company has reported 9.6% YoY growth in total income from operations; however bottom line has declined by 85.5% YoY. Here is our analysis of the results

Performance summary
  • Topline grows by 9.6% YoY during the quarter. The core pharmaceutical business witnesses growth of 8% YoY for the said period.
  • Operating margins improve by 4.3% to 16.8% in 1QFY14, leading to the 47.2% YoY growth in operating profits for the quarter.
  • Bottomline declines by 85.5% YoY during 1QFY14. This is largely due to exceptional income received by the company in 1QFY13, on the sale of its animal health business.

Standalone financial summary
(Rs m) 1QFY13 1QFY14 Change
Net sales 2,198 2,375 8.0%
Other operating income 228 286 25.6%
Expenditure 2,123 2,215 4.3%
Operating profit (EBDITA) 304 447 47.2%
EBDITA margin (%) 12.5% 16.8%  
Other income 252 305 21.0%
Interest (net) 1 1 -33.3%
Depreciation 21 20 -3.8%
Profit before tax 534 731 37.0%
Exceptional Item 3,825 -  
Tax 1,070 255 -76.2%
Profit after tax/(loss) 3,289 476 -85.5%
Net profit margin (%) 135.5% 17.9%  
No. of shares (m)   29.8  
Diluted earnings per share (Rs)   73.9  
Price to earnings ratio (x)*   13.9  
*based on trailing 12 months earnings

What has driven performance in 1QFY14?
  • Pfizer's topline grew by 9.6% YoY during the quarter. The core pharma sales grew by 8% and the other operating income grew by 25.6% YoY. In FY13, the company had sold off its animal business and thus currently, only has Pharma segment as its core business segment.

  • Operating margins witnessed a healthy improvement of 4.3% leading to the 47.2% YoY growth in operating profits. This was inspite of non-recurring expenses relating to VRS of Rs 893 m. The other expenses of the company also declined by 9% YoY, which helped in margin improvement.

  • Bottomline fell by 47.2% YoY during 1QFY14. This was largely due to onetime income received from the sale of its animal health business. At the PBT level, the company witnessed growth of 37% YoY, for the said period.
What to expect?
At the current price of Rs 1,026, the stock is trading at a multiple of 14.3 times our estimated FY16 earnings. The company has taken various steps to bolster business and has redesigned its sales force. As per the management, this arrangement will help the company to bring down its operating expenses and thus help in improving its field force productivity.

As per the management, the company does not expect to launch more than 1-2 products from its parent company. However, it targets to launch 10-12 products annually.

We have a cautious view on the company's higher dependence on 4 of its brands. Of these, Corex is sold under regulation. Though the company expects negligible price impact due to pricing policy on its top brands, we would wait and see, as to how the actual impact pans out for the company. After taking into account 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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