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Pfizer India: Top brands mar growth - Views on News from Equitymaster

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Pfizer India: Top brands mar growth
Nov 10, 2012

Pfizer India has announced its 2QFY13 results. The company has reported 9% YoY decline in sales and an 11% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline declines by 9% YoY during the quarter due to sale of the animal health business. Excluding animal health business, growth was still subdued at 3% YoY.
  • Operating margins improve by 6% leading to a 19% YoY growth in operating profits.
  • Bottomline increases by 11% YoY during 2QFY13. However, on excluding the extraordinary item during 2QFY13, bottomline improves by 19% YoY.

Standalone performance summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 2,718 2,462 -9.4% 5,137 4,660 -9.3%
Other operating income 177 225 27.0% 368 453 23.2%
Expenditure 2,378 2,070 -12.9% 4,566 4,178 -8.5%
Operating profit (EBDITA) 517 616 19.1% 939 935 -0.4%
EBDITA margin (%) 19.0% 25.0%   18.3% 20.1%  
Other income 225 226 0.2% 448 478 6.5%
Interest (net)            4 6 41.9%            9 12 32.3%
Depreciation 26 20 -21.3% 49 41 -16.4%
Profit before tax 713 815 14.4% 1,328 1,359 2.3%
Exceptional Item - (36)   - 3,775  
Tax 243 257   446 1,327 197.4%
Profit after tax/(loss) 470 523 11.3% 882 3,808 331.5%
Net profit margin (%) 17.3% 21.2%   17.2% 81.7%  
No. of shares (m)         29.8  
Diluted earnings per share (Rs)         61.4  
Price to earnings ratio (x)*         18.4  
*based on trailing 12 months earnings

What has driven performance in 2QFY13?
  • Pfizer's topline declined by 9% YoY during the quarter due to sale of its animal health business. Excluding animal health business, growth was still subdued at 3% YoY. Growth was impacted due to decline in the performance of its top 4 brands. The company does not target to make many launches in the second half and would target only quality launches.

  • In the pharmaceuticals segment, top 4 brands contributing ~50% of sales witnessed negative growth. Among these top brands, large part is contributed by Corex. The company is facing problems at the trade channels, which has resulted in this negative growth. Pfizer does not expect ramp up in Corex to happen in the near term. Becosules, a multi vitamin drug too is facing challenges; however, the company has remained confident of bringing back the product growth to 5-6% from current decline in growth, by launching line extensions of the drug. Gelusil, has been slowly losing its edge as doctors have started focusing on PPI (Proton Pump Inhibitor) based medications. Pfizer too is now focusing on PPIs and expects growth to improve by 8%-9%. The rest of the portfolio is growing by 14%.

    Revenue break up
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Pharmaceuticals 2,392 2,401 0.4% 4,497 4,579 1.8%
    Animal Health 326 -   640 -  
    Services 177 -   367 -  
    Others 248 283 14.1% - 531  
    Total Sales 3,142 2,684 -14.6% 5,504 4,579 -16.8%

  • Operating margins improved by 6% leading to a 19% YoY growth in operating profits. The improvement was contributed on the back of Wyeth's servicing income received during the quarter.

  • Bottomline increased by 11% YoY during 2QFY13. However, on excluding the extraordinary item during 2QFY13, bottomline improved by 19% YoY. At the PBT level, growth in the pharmaceutical business stood at 20% at Rs 1,350 m in 2QFY13 verses Rs 1,200 m in 2QFY12.

What to expect?
The company had invested in creating a 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 1,400). 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. The company is also focusing to improve its field force productivity, by targeting quality launches this will help in rationalizing the costs ahead. We have seen some minor benefits on this front in this quarter and further expect benefits to accrue in the upcoming period as well. Performance in the top 4 brands remains a near term catalyst for the company.

At the current price of Rs 1,131, the stock is trading at a multiple of 13.4 times our estimated FY15 earnings. After taking into account the future growth prospects, current valuations looks attractive and we have a 'Buy' view on Pfizer at the current market price.

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