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Pfizer India: Bottom line plummets - Views on News from Equitymaster
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Pfizer India: Bottom line plummets
Dec 19, 2014

Pfizer India has announced its 2QFY15 results. The company has reported growth of 0.8% in net sales and a loss of Rs 118 m for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales grows by just 0.8% YoY during the quarter. Excluding animal health business, which was part of the company's business in 1QFY14, the growth stands at 7% YoY.
  • Operating margins witness sharp fall of 8%, on the back of various non recurring expenses.
  • On the back of VRS taken by some employees, there is an extraordinary expense of Rs 760 m. Subsequently, the company reports net loss of Rs 118 m during the quarter.

Financial performance snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 2,674 2,695 0.8% 5,049 5,093 0.9%
Other operating income 316 270 -14.5% 603 533 -11.5%
Expenditure 2,245 2,464 9.8% 4,459 4,503 1.0%
Operating profit (EBDITA) 745 501 -32.7% 1,192 1,124 -5.7%
EBDITA margin (%) 24.9% 16.9%   21.1% 20.0%  
Other income 345 100 -71.0% 649 201 -69.1%
Interest (net) 0.1 0.5 400.0% 1 2 88.9%
Depreciation 22 19 -13.2% 42 42 0.0%
Profit before tax 1,068 582 -45.5% 1,799 1,281 -28.8%
Exceptional Item - (760)   - (760)  
Tax 372 (61)   626 178 -71.6%
Profit after tax/(loss) 696 (118)   1,173 343 -70.8%
Net profit margin (%) 23.3% -4.0%   23.2% 6.7%  
No. of shares (m)       29.8 29.8  
Diluted earnings per share (Rs)         74.0  
Price to earnings ratio (x)*         22.4  
*based on trailing 12 months earnings

What has driven performance in 2QFY15?
  • Net sales grew by 7% YoY, after adjusting the animal health business during the quarter. Company witnessed some pressures in Corex supplies due to govertment's regulations on codeine. Excluding Corex sales, the overall pharma segment grew by 13% YoY.

  • Operating margins plummeted to 16.9% in 2QFY15 from 24.9% in 2QFY14. This was largely attributable to expenses related to merger, additional promotional expenses incurred on some brands and renting new office premises for the merged entity.

  • On the back of VRS taken by some employees, there was an extraordinary expense of Rs 760 m. Subsequently, the company reported net loss of Rs 118 m during the quarter. This VRS pertains to a manufacturing plant located in Thane, which was closed for employees' unrest.
What to expect?
At the current price of Rs 1,660, the stock is trading at a multiple of 16.3 times our estimated FY17 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.

Post the merger with Wyeth, the books of accounts of both the companies will be consolidated. The court has given green signal for the merger.

Pfizer will benefit from Wyeth's portfolio and this will be positive for the company. However, the Indian government is aggressively taking steps to bring the drugs under pricing regulations, and this can have negative impact on the company's revenue stream. Based on the current valuations, our view is that investors who have the stock in their portfolio can Hold on to the same.

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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