Visit http://indiaer.blogspot.com/ for complete details Pfizer Ltd
Heading for a stronger & sustainable growth trajectory
We initiate coverage on Pfizer India (PFIZ) with a BUY and a Sep ’11 target
price of Rs 1400 (25% upside). Despite its strong parentage, PFIZ has been
unable to record robust growth in the past. However, to boost growth and
increase penetration in the Indian market, it has spruced up its sales force
sizably. This move, we believe, will benefit PFIZ immensely, given its strong
brand building capabilities. Field force expansion and new product launches
would push up growth rates to 17-19% over the next two years (from flat
growth in CY07-CY08 and 11-13% in CY09-CY10). Also, EBITDA margins,
which are currently under pressure, are likely to expand 350bps over this
period as the sales force becomes more productive. Overall, we estimate a 20%
earnings CAGR, and thereby higher return ratios, over CY10-CY12E.
Valuations, at a PER of 14.1x CY12E are attractive. This apart, when its merger
with Wyeth materialises, PFIZ will corner a rank in the top10 slot domestically.
Expect 18% CAGR over CY10-CY12: Since the last few quarters, PFIZ has
consistently increased its field force (added over 1,000 people). This is likely to
aid a growth of 18%/21% in its core pharma business (87% of sales in CY10) in
CY11/CY12 against 12-13% in the past two years. Overall, we estimate 18%
revenue CAGR over CY10-CY12E.
Margin recovery ahead: Over CY08-CY10, PFIZ is likely to report 12% higher
revenues but 29% higher staff costs. However, an improving product mix would
limit the margin contraction to 260bps. We estimate the margin profile to
improve in sync with rising staff productivity.
Expect 20% earnings growth, higher return ratios over CY10-CY12: Higher
revenues and margins would enable PFIZ report a 20% earnings CAGR over
CY10-CY12. Also, an improvement in operating performance would increase its
return ratios from 15.6% to 17.4% over this period.
Attractive valuations; Buy: The stock is currently trading at a PER of 17.5x/14.1x
CY11E/12E earnings. These valuations are attractive, given the positively shifting
growth trajectory. Our target price of Rs 1400 is based on 18x Sep ’12 earnings,
a 22% discount to the sector lead GlaxoSmithKline Pharma (GSK), given PFIZ’s
lower return ratios. PFIZ’s target multiple is also at a 12% discount to its
historical trading mean.
Key risks: a) Higher competition in the domestic market. b) Regulatory hurdles. c)
Higher loans/advances to a privately held group company. d) High concentration
risk (two products generate ~30% of sales) e) Higher product launches by parent
through privately held companies.
No comments:
Post a Comment