Pfizer India - Riding the brandwagon; Initiating with a Buy :: anand rathi,

Pfizer India
Riding the brandwagon; Initiating with a Buy
Continued support from a strong parent and brand equity are Pfizer’s
backbone. Focus on expanding branded generics business in emerging
markets and higher productivity on account of field force addition in
past two years are key growth drivers, going forward. Further, the
company’s strong cash position is sure to give it enough leverage to
grow the inorganic way. Thus, we initiate coverage on Pfizer with a
Buy rating and price target of `1,518.

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 Strong parentage and formidable product profile. Pfizer has strong
virtues arising from its lasting relationship with parent, Pfizer, Inc. (US)
Its product kitty comprises many established brands like Corex, Gelusil,
Becosules, Magnex – all ranking among the top-three in their therapeutic
areas. Over the years, these products have endowed Pfizer with
sustainable revenues growth (14.1% CAGR over FY09-12).
 Branded generics a key growth driver. We expect 13.3% CAGR in
revenues over FY12-15 in its domestic pharma segment, in line with the
industry growth rate. Revenue growth will be primarily aided by a higher
share of branded generics, up from 5% currently to 10% by FY15, in our
view. Other products are likely to continue posting steady volumes.
 Strong balance sheet and return ratios. Pfizer has net cash of ~`13bn
on its books (~35% of market cap), which gives it adequate leverage to
grow inorganically. With no major capex plans in the immediate future,
we expect its core business RoE and RoCE (excl. cash) to improve to
over 30% from 25% currently, led by steady net profit growth.
 Valuation. The stock is trading at attractive valuations of 17.8x FY13e
and 15.6x FY14e earnings. We value it at `1,518, based on 20x Dec’13e
core earnings and `428 for the cash balance (considering 15% discount).
Risks: Proposed new pricing policy and keener competition in generics.