Rating: Buy; Target Price: Rs1,630; CMP: Rs1,283; Upside: 27%
Strong brands to drive growth
We maintain Buy rating with target price of Rs1,630 (earlier Rs1,670)
for Pfizer based on 18xFY16 EPS of Rs90.5. Though Pfizer’s Q4FY14
results were lower than our expectations, FY14 consolidated results
were in line with our expectations. The company reported 3% decline in
revenues due to NPPP effect and absence of Animal Health Care (AHC)
sales during the quarter. Pfizer reported strong margin improvement of
710bpsYoY due to overall reduction in costs. The reduction in equity
capital due to merger with Wyeth will improve EPS. The merged company
will have strong brands and better bargaining power. Key risks to
our assumptions are stiff competition from other domestic players and
lower growth of its major brands.
$ Revenue declines by 3%: Pfizer reported 3%YoY decline in revenues to
Rs2.75bn from Rs2.81bn due to slow growth in the pharma segment and
absence of AHC sales. The pharma segment grew by 6%YoY to Rs2.52bn
from Rs2.37bn in line with the industry growth of ~6%. The company’s
revenues were impacted by the price reduction of its major CVS brand
Amlogard (amlodipine besylate) which went under price control. The
expected annual hit would be ~Rs150mn. We expect the company to
report higher revenue growth in FY15 due to price increase of its
products in April’14.
$ Strong margin improvement: Pfizer’s EBIDTA margin improved by
710bpsYoY to 26.6% from 19.5% due to overall reduction in costs. The
company’s material cost declined by 100bps to 32.3% from 33.3% due to
the change in product mix. Personnel expenses declined by 270bps to
14.0% from 16.7% due to the re-structuring of sales force. Other
expenses declined by 340bps to 27.3% from 30.6%. We expect improvement
in Pfizer’s margin from economies of scale and better bargaining power
due to the merger.
$ Net profit declines by 4%: Pfizer’s net profit for the quarter
declined by 4%YoY to Rs560mn from Rs582mn due to lower sales growth
and higher tax rate. Its tax rate went up to 35.6% from 30.9%. Pfizer
is a debt-free, cash rich company and paid interim dividend of Rs360
per share (3,600%) in December’13. The cash/share was Rs103 for Pfizer
and Rs69 for Wyeth as on 31st March’14.
$ Recommendation and key risks: At the CMP of Rs1283, Pfizer trades at
18.4x FY15E EPS of Rs71.8 and 17.9x FY16E EPS of Rs90.5 and 14.2x
FY17E EPS of Rs108.0. We have revised our FY15 and FY16 estimates
downwards by 6% and 3% respectively. We maintain Buy rating on the
scrip with a target price of Rs1,630 based on 18x FY16 EPS of Rs90.5
with an upside of 27% from CMP. We expect the merged company to report
better performance due to its strong brands and higher bargaining
power. Key risks to our assumptions are stiff competition from other
domestic players and lower growth of its major brands.
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Strong brands to drive growth
We maintain Buy rating with target price of Rs1,630 (earlier Rs1,670)
for Pfizer based on 18xFY16 EPS of Rs90.5. Though Pfizer’s Q4FY14
results were lower than our expectations, FY14 consolidated results
were in line with our expectations. The company reported 3% decline in
revenues due to NPPP effect and absence of Animal Health Care (AHC)
sales during the quarter. Pfizer reported strong margin improvement of
710bpsYoY due to overall reduction in costs. The reduction in equity
capital due to merger with Wyeth will improve EPS. The merged company
will have strong brands and better bargaining power. Key risks to
our assumptions are stiff competition from other domestic players and
lower growth of its major brands.
$ Revenue declines by 3%: Pfizer reported 3%YoY decline in revenues to
Rs2.75bn from Rs2.81bn due to slow growth in the pharma segment and
absence of AHC sales. The pharma segment grew by 6%YoY to Rs2.52bn
from Rs2.37bn in line with the industry growth of ~6%. The company’s
revenues were impacted by the price reduction of its major CVS brand
Amlogard (amlodipine besylate) which went under price control. The
expected annual hit would be ~Rs150mn. We expect the company to
report higher revenue growth in FY15 due to price increase of its
products in April’14.
$ Strong margin improvement: Pfizer’s EBIDTA margin improved by
710bpsYoY to 26.6% from 19.5% due to overall reduction in costs. The
company’s material cost declined by 100bps to 32.3% from 33.3% due to
the change in product mix. Personnel expenses declined by 270bps to
14.0% from 16.7% due to the re-structuring of sales force. Other
expenses declined by 340bps to 27.3% from 30.6%. We expect improvement
in Pfizer’s margin from economies of scale and better bargaining power
due to the merger.
$ Net profit declines by 4%: Pfizer’s net profit for the quarter
declined by 4%YoY to Rs560mn from Rs582mn due to lower sales growth
and higher tax rate. Its tax rate went up to 35.6% from 30.9%. Pfizer
is a debt-free, cash rich company and paid interim dividend of Rs360
per share (3,600%) in December’13. The cash/share was Rs103 for Pfizer
and Rs69 for Wyeth as on 31st March’14.
$ Recommendation and key risks: At the CMP of Rs1283, Pfizer trades at
18.4x FY15E EPS of Rs71.8 and 17.9x FY16E EPS of Rs90.5 and 14.2x
FY17E EPS of Rs108.0. We have revised our FY15 and FY16 estimates
downwards by 6% and 3% respectively. We maintain Buy rating on the
scrip with a target price of Rs1,630 based on 18x FY16 EPS of Rs90.5
with an upside of 27% from CMP. We expect the merged company to report
better performance due to its strong brands and higher bargaining
power. Key risks to our assumptions are stiff competition from other
domestic players and lower growth of its major brands.
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