Wyeth - Management Interaction Note - Centrum

Management Interaction Takeaways

Wyeth

Buy

Target Price: Rs1,265

CMP: Rs873         

Upside: 45%

We recently interacted with the management of Wyeth to get their feedback on the latest update on the company. The key highlights are:

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m  Lower sales growth in Q2FY13: Wyeth’s sales growth in Q2FY13 was affected by retailer schemes. The company has modified the schemes to even out sales growth across the quarters.  The pharma segment (94% of revenues) grew by 7%YoY. The decline in growth of 11%YoY in the OTC segment (6% of revenues) was due to strong competition for its brand Anne French hair remover and Anacin in the segment.

m  Branded value offerings to drive growth: In FY12, the company launched six products in the Branded Value Offerings (BVO) segment. These were: Menocare 100, Menocare 200, Doris, Tussivil, Folvite MB and Pausera. Most of these products are in the women’s healthcare segment and are likely to drive future growth.
m  Margin under pressure:  Wyeth’s margin declined by 500bps YoY from 28.7% to 23.7% due to the change in the product mix and weakening of rupee against the dollar in Q2FY13. The company’s material cost increased by 630bps YoY from 37.4% to 43.7% due to the rise in imported raw materials and finished products cost due to depreciating rupee and change in product mix. With the modification in retailer schemes and stabilization of the rupee, the management expects improvement in margins.
m  Rise in the other income: Wyeth’s other income in Q2FY13 grew by 23%YoY mainly from treasury operations. Wyeth is a debt-free cash rich company and has Rs179 cash per share.
m  Prevenar 13 doing well: The company’s major brand prevenar 13 is performing well. The company launched Prevenar 13 for adult use in June’12. This is promoted by a separate team of 50 MRs targeting general practitioners and chest specialists. The management feels that this would be challenging as it is a concept selling.
m  Wysolone reports strong growth: As per IMS-MAT-Oct’12 data, the company’s major brand Wysolone reported strong growth of 43% despite being under price control. This product will continue to be under price control under NPPP.
m  Effect of NPPP: Two of the major brands of Wyeth namely,  Mucaine and Prevenar 13 will be outside price control as per NPPP as Mucaine  does not appear in the list of 348 NLEM drugs and the price of Prevenar 13 will be determined by a special committee set up to determine imported product pricing. Wysolone price would not get impacted much as the product is already under price control and will continue to be under price control. The prices of Folvite, Ovral-L and Atival which are currently outside DPCO will get included in NPPP adversely impacting the company.
m  Folvite would get major hit: The management expects a major hit in the price of Folvite, which is likely to be offset partially by the increase in volumes.

Our Estimates:

m  At the CMP of Rs873, the stock trades at 12.3x FY13E EPS of Rs71.1 and 10.4x FY14E EPS of Rs84.3.
m  We have a Buy rating for the scrip with a target price of Rs1,265 with an upside of 45% over CMP.

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