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Pfizer: Dismal performance - Views on News from Equitymaster
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  • Sep 30, 2003

    Pfizer: Dismal performance

    After a long delay Pfizer announced its 1QFY04, 2QFY04 and 3QFY04 results recently. The company was earlier restrained from announcing the same due to litigations filed by dissenting shareholders of Parke-Davis over its merger with the latter company. For 3QFY04, while the topline has declined marginally by 1%, bottomline has dropped 40%. For 9mFY04, Pfizer has recorded a 7% decline in topline and a massive 60% drop in bottomline. In this context, let us take a detailed look at the company’s performance.

    Dismal performance…
    (Rs m) 3QFY03 3QFY04 Change 9mFY03 9mFY04 Change
    Net Sales 1,362 1,349 -1.0% 3,693 3,432 -7.1%
    Other Income 90 90.4 0.4% 422 283 -33.1%
    Total expenditure 1,102 1,193 8.2% 3,132 3,159 0.8%
    Operating Profit (EBDIT) 260 156 -40.0% 561 273 -51.3%
    Operating Profit Margin (%) 19.1% 11.6%   15.2% 8.0%  
    Interest 4 1 -80.6% 6 4 -42.9%
    Depreciation 19 20 2.1% 71 70 -1.8%
    Profit before Tax 327 226 -30.9% 906 482 -46.7%
    Extra-ordinary items (29) (38) 30.3% (82) (113) 38.9%
    Tax 93 65 -30.2% 288 155 -46.2%
    Profit after Tax/(Loss) 205 123 -39.9% 536 214 -60.1%
    Net profit margin (%) 15.0% 9.1%   14.5% 6.2%  
    No. of Shares (m) 28.8 28.8   28.8 28.8  
    Earnings per share* 28.4 17.1   24.8 9.9  
    P/E ratio   23.8     41.0  
    Since all figures include the results of the erstwhile Parke-Davis, the same are comparable.

    A general slowdown in the domestic pharma market has resulted in a marginal decline in Pfizer’s topline. Uncertainty caused due to the VAT fiasco and planned de-stocking at the wholesalers level further stunted topline growth. Merger related issues like sales force rationalization have put pressure on the operating margins. Although interest expenses and tax provision have declined, a drop in the operating profits and an increase in the extra-ordinary expenditure has affected Pfizer’s bottomline. The extra-ordinary expenditure increased due to writing off of VRS payments and other merger related expenses.

    Quarterly performance…
    (Rs m) 1QFY04 2QFY04 3QFY04
    Net sales 1,010 1,073 1,349
    QoQ growth (%) - 6.2% 25.7%
    Operating profit 106 11 156
    QoQ growth (%) - -89.6% 1318.2%
    Operating Profit Margin (%) 10% 1.0% 11.6%
    Profit after Tax/(Loss) 79 12 123
    QoQ growth (%) - -84.8% 925.0%
    Net profit margin (%) 8% 1.1% 9.1%

    For 9mFY04, Pfizer’s performance was affected due to the company’s poor showing in the 2QFY04. In 2QFY04, the operating margins have dropped to 1% as compared to 9% during the corresponding previous quarter. This was primarily on account of an increase in other expenditure as a percentage of sales to 39% (31% in 9mFY03). Raw material and staff costs have also increased more than proportionately. Declining margins coupled with an increase in the extra-ordinary expenditure has resulted in the company recording a sharp 60% drop in net profit. The gradual decline in the performance of wholly owned subsidiary, Duchem Laboratories, has further affected Pfizer’s results. Duchem Laboratories has now reported a decline in topline and net losses for the last four quarters.

    Duchem: Going south…
    (Rs m) 9mFY03 9mFY04
    Net sales 714 122
    PAT 3 (45)

    At Rs 406, Pfizer is currently trading at a P/E of 41x its 9mFY04 earnings. The key reason for Pfizer’s poor showing has been its old product portfolio. Absence of product patents has resulted in the company not being able to take advantage of its parent’s strong product portfolio. Resultantly, Pfizer has recorded de-growth even when the domestic pharma market has shown signs of revival i.e., in August ‘03. Thus we expect the company’s growth to be under pressure in the near term. However, once, the operational merger between Pfizer and Park-Davis is completed, and product patents are introduced, the performance of the company could show some improvement.



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