Margin improves Pfizer results Q2FY13: :: Centrum

Margin improves
Pfizer results for Q2FY13 were in line with our expectations. The company
reported 7%YoY decline in revenues, 500bps improvement in EBIDTA margin
and 19%YoY growth in net profit despite lower growth of pharma business.
The sales growth of pharma segment was flat due to slower growth of four
key brands namely: Corex, Becosules, Gelusil and Dolonex. The introduction
of new products in the domestic market is likely to drive growth. We have
revised the rating from Neutral to Buy and maintained the target price at
Rs1,325 (based on 17x FY14E EPS of Rs77.9) with an upside of 16.9%.
Slow domestic growth: Pfizer reported 7%YoY decline in total revenues from
Rs2.90bn to Rs2.69bn due to slower growth of the pharma business and
divestment of AHC business to its 100% subsidiary. The pharma business (89%
of revenues) was flat at Rs2.40bn. AHC revenues were ‘nil’ against Rs326mn.
The services business grew by 60%YoY from Rs177mn to Rs283mn.
Good margin improvement: Pfizer’s EBIDTA margin improved by 500bps
YoY from 17.9% to 22.9% due to overall decline in expenses. Material cost
declined by 140bps from 34.7% to 33.3% of revenues due to the change in
product mix with the absence of AHC products. Personnel cost declined by
50bps YoY from 17.4% to 16.9% due to lower incentives to field staff and
credit of Rs40mn from the retirement scheme. Other expenses declined by
320bps from 30.0% to 26.8% due to lower ad spend and lower new product
launches.

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BVO-future growth driver: Pfizer has added a field force of 500 MRs over the
last 2 years and has launched 53 Branded Value Offering (BVO) products. Of
this, 6-7 BVOs have crossed the annual revenues of Rs70-80mn. The BVO
segment has contributed 7% to the revenue and has grown by 77%YoY. We
expect BVO segment to drive future growth.
Four brands have good growth: As per IMS MAT-Sept’12, Pfizer’s four brands
are growing faster than the market. These are: Corex 18.4%, Minipress-XL
16.8%, Lyrica 14.4% and Claribid 13.1%. The lower growth in Becosules is
attributed to the trade scheme and that for Gelusil due to slowdown of the
category. The management has indicated that Corex faces regulatory
challenges currently.
Valuations: We expect Pfizer to benefit from good growth of BVO products
and the introduction of new products. At the CMP of Rs1,133, the stock trades
at 16.6x FY13E EPS of Rs68.1 and 14.5x FY14E EPS of Rs77.9. We have revised
the rating from Neutral to Buy and maintained the target price at Rs1,325
(based on 17x FY14E EPS of Rs77.9) with an upside of 16.9%.