On a growth path Pfizer :: Centrum

On a growth path
Pfizer’s results for Q4FY13 were better than our expectations. The company reported a growth of 3%YoY in revenues, 60bps in EBIDTA margin and 20%YoY in net profit before EO items. Sales growth was 19% on like-to-like basis due to the divestment of Animal Healthcare (AHC) business during the year. Pfizer is a cash rich, debt-free company with cash/share of Rs480. The company has declared Rs12.5 per share as regular dividend and Rs20.0 per share as special dividend from the divestment of AHC business, giving a dividend yield of 3%. We have a Buy rating for the scrip and a revised target price from Rs1,290 to Rs1,397 (based on 17x Sept’14 EPS of Rs82.2).
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Sales growth lower: Pfizer reported 3%YoY growth in revenues from Rs2.73bn to Rs2.82bn in Q4FY13. Pharma business revenues (84% of total) grew by 10%YoY from Rs2.16bn to Rs2.37bn. Pharma growth was in line with the industry growth of ~11%. Its services and other business (16% of revenues) grew by 120%YoY from Rs201mn to Rs441mn. The AHC business posted no revenues against Rs354mn earlier. On a like-to-like basis, sales growth was 19%YoY.
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Margin improves: Pfizer’s margin for Q4FY13 improved by 60bps from 18.6% to 19.2% of total revenues due to the decline in other expenses. Its material cost declined marginally by 10bps from 33.4% to 33.1% of net sales. Personnel cost increased by 420bps due to increase in manpower and annual increments. Other expenses declined by 460bps from 35.3% to 30.7% due to rationalisation measures.

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Major products’ growth slows: As per IMS MAT-March’13 data, Pfizer grew by 7.6% against the industry growth of 10.1%. Of eight major brands, only one, Minipress-XL grew at 17.5%, higher than the industry growth rate. Pfizer’s eight major brands contributed 43% to the company’s revenues. We expect Minipress-XL to drive future growth.
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No major impact from new pricing policy: Pfizer is unlikely to get majorly impacted by the National Pharmaceutical Pricing Policy (NPPP) as two of its brands, Dolonex and Minipress-XL are likely to face revenue loss of Rs60mn each annually. At the company level, the revenue loss would be Rs140mn and at the PBT level Rs106mn.
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Debt-free company: Pfizer is a cash rich, debt-free company with cash per share of Rs480 (45% of CMP). The company has paid Rs32.5 per share dividend (Rs12.5 regular+Rs20 special) with a dividend yield of 3%. The management is looking at acquisition of brands/companies in the domestic market.
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Valuation: We expect Pfizer to benefit from the good growth in the domestic branded formulations and clinical trials. At the CMP of Rs1078, the stock trades at 14.1x FY14E EPS of Rs76.4 and 12.3x FY15E EPS of Rs87.9. We have revised our FY14 and FY15 estimates upwards by 1% and 2% respectively. We have a Buy rating for the scrip with a revised target price of Rs1,397 (based on 17x Sept’14 EPS of Rs82.2), an upside of 29.6% over CMP.