Wyeth - Q2FY13 Result Update - Centrum

Q2FY13 Result Update/ Estimate Revision

Wyeth

Buy

Target Price: Rs1,265

CMP: Rs887

Upside: 42.6%

Sharp fall in margins

Wyeth’s results for Q2FY13 were disappointing. The company reported 5%YoY growth in revenues, 500bps reduction in EBIDTA margin and 11%YoY decline in net profit. Sales growth was affected by retailer schemes. Wyeth’s EBIDTA margin got affected by the change in product mix and weakening of the rupee which had a bearing on imported raw material cost. The company’s material cost increased by 630bps YoY. Wyeth is a debt-free cash rich company with Rs179 cash per share. We have a Buy rating for the scrip with a target price of Rs1,265 (based on 15x FY14E EPS).

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m  Low sales growth:  Wyeth reported 5%YoY growth in revenues from Rs1.49bn to Rs1.57bn, lower than the industry growth of ~12%. The pharma segment (94% of revenues) grew by 7%YoY from Rs1.39bn to Rs1.48bn. The OTC segment (6% of revenues) declined by 11%YoY from Rs102mn to Rs91mn. Wyeth markets Anne French hair remover and Anacin in the OTC segment.

m  Sharp drop in margin: Wyeth’s EBIDTA margin declined sharply by 500bpsYoY from 28.7% to 23.7% due to the increase in the material cost. Material cost increased by 500bps from 37.4% to 43.7% of revenues due to the change in product mix and increase in imported material cost.

m  Higher tax rate:  Wyeth’s tax rate has gone up from 29.3% to 32.8% during the quarter.

m  Slow growth for major brands:  As per IMS MAT-Aug’12, Wyeth’s three major brands reported slow growth – Folvite 3.6%, Mucaine 8.5% and Ativan 3.5%. This resulted in lower sales growth.

m  Branded Value Offerings to drive growth: Wyeth launched six products in the Branded Value Offering (BVO) segment. These are, Menocare 100, Menocare 200, Doris, Tussivil, Folvite MB and Pausera. These products are likely to drive future growth of the company.

m  Leading player in oral contraceptive segment:  Wyeth is the market leader in the oral contraceptive (OC) segment where it has over 23%MS. As per IMS MAT-Aug’12, its flagship brand Ovral-L reported ~19% growth.

m  Valuations: We expect Wyeth to benefit from good growth in the domestic market, recent launch of BVO products and Prevenar 13 for adult use.  At the CMP of Rs887, the stock trades at 12.5x FY13E EPS of Rs71.1 and 10.5x FY14E EPS of Rs84.3. We have revised our EPS estimates downwards by 6% and 7% for FY13 and FY14 respectively. We have a Buy rating for the scrip with a target price of Rs1,265 (based on 15x FY14E base EPS of Rs84.3) with an upside of 42.6% over CMP.

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