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Pfizer India: Non-core biz fuels growth - Views on News from Equitymaster

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Pfizer India: Non-core biz fuels growth

Nov 21, 2013

Pfizer India has announced its 2QFY14 results. The company has reported an 8.6% YoY and 33% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline (including operating income) grows by 11.4% YoY during the quarter. The core pharmaceutical business grows by 5% YoY.
  • Operating margins improve by 3.5% to 24.9% in 2QFY14, leading to the 29.4% YoY growth in operating profits for the quarter.
  • Bottomline grows by 33% YoY during 2QFY14 largely due to the increase in other income.

Standalone financial snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 2,462 2,674 8.6% 4,660 5,049 8.3%
Other operating income 223 316 42.0% 451 603 33.7%
Expenditure 2,109 2,245 6.4% 4,231 4,459 5.4%
Operating profit (EBDITA) 576 745 29.4% 879 1,192 35.6%
EBDITA margin (%) 21.4% 24.9%   17.2% 21.1%  
Other income 226 345 52.7% 478 649 36.0%
Interest (net) 2 0.1 -93.3% 3 1 -66.7%
Depreciation 20 22 7.9% 41 42 1.9%
Profit before tax 779 1,068 37.0% 1,313 1,799 37.0%
Exceptional Item - -   3,825 -  
Tax 256 372 45.2% 1,327 626 -52.8%
Profit after tax/(loss) 523 696 33.0% 3,812 1,173 -69.2%
Net profit margin (%) 19.5% 23.3%   81.8% 23.2%  
No. of shares (m)         29.8  
Diluted earnings per share (Rs)         80  
Price to earnings ratio (x)*         17.4  

What has driven performance in 2QFY14?
  • Pfizer's topline grew by 11.4% YoY during the quarter. Net sales grew by 8.6% and the other operating income grew by 42% YoY. Company's core pharmaceuticals sales grew by 5% YoY. The net sales of the company also included revenues from services provided to animal health segment post spin off this business. The new pricing policy continued to impact Pfizer's revenues. Company's Amlogard brand came under the pricing policy and thus the sales of this brand were impacted. The sales of this brand were impacted by approx. 40% YoY. The company has witnessed impact of Rs 120-180 m so far. The growth in Becosules too slowed down on the back of trade issues. This brand contributes approx. Rs 1.5 bn, which is around 16% of FY13 sales. Over and above, the company also mentioned that the its branded formulations business is witnessing some pressures. Thus the company will be bringing down its focus in the branded drugs portfolio from 50 drugs to 10-15 drugs. Company is looking to focus more on strong brands. Sales in branded generics for the 1H have been Rs 2.5bn, which is around 5% of sales. The growth in other operating income is largely on back of services provided to Wyeth.

  • Operating margins witnessed a healthy improvement of 3.5% to 24.9% in 2QFY14. This led to the 29.4% YoY growth in operating profits. This was helped by field force rationalization, better realization from Wyeth income

  • Bottomline grew by 33% YoY during 2QFY14, largely helped by higher other income.
What to expect?
At the current price of Rs 1,395, the stock is trading at a multiple of 20.6 times our estimated FY16 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.

Recently, the company announced that it is looking to amalgamate its business with that of Wyeth in India. This is following the merger of the parent companies which took place after Pfizer had acquired Wyeth in 2009. In light of this development, we will update our financials after we get more clarity on this amalgamation. Till then, our view is that investors 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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