Rating: Buy; Target Price: Rs1,810; CMP: Rs1,372; Upside: 31.9%
Wyeth’s performance strong
We maintain Buy rating on Pfizer with a target price of Rs1,810 based
on 19xJune’16E EPS of Rs95.0. Though Pfizer’s Q1FY15 results were
lower than our expectations, the combined results with Wyeth were in
line with our FY15 estimates. Pfizer reported flat revenues due to
NPPP effect and the absence of Animal Health Care (AHC) business
during the quarter. The company’s EBIDTA margin improved by 330bpsYoY
to 23.4% due to overall reduction in costs. The reduction in equity
capital due to the merger with Wyeth will improve EPS. The merged
company will have 14 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.
$ Flat Revenues due to absence of AHC business: Pfizer reported flat
revenues of Rs2.66bn due to the absence of AHC sales. The pharma
segment (90% of revenues) grew by 9.9%YoY to Rs2.40bn from Rs2.18bn in
line with the industry growth of ~9.8%. 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. The AHC segment had nil revenues against
Rs193mn. We expect the company to report higher revenue growth in FY15
due to price increase of its products in April’14.
$ Good margin improvement: Pfizer’s EBIDTA margin improved by
330bpsYoY to 23.4% from 20.1% due to overall reduction in costs. The
company’s material cost declined by 190bps to 30.7% from 32.6% due to
the change in product mix and absence of low margin AHC business.
Personnel expenses declined by 40bps to 18.8% from 19.2% due to the
re-structuring of the sales force. Other expenses declined by 100bps
to 27.1% from 28.1%. We expect improvement in Pfizer’s margin from
economies of scale and better bargaining power due to the merger.
$ Net profit declines by 18%YoY: Pfizer’s net profit for the quarter
declined by 18%YoY to Rs462mn from Rs565mn due to lower sales growth,
lower other income and higher tax rate. Pfizer’s other income declined
by 67%YoY to Rs101mn from Rs305mn. Its tax rate went up to 34.0% from
31.1%. Pfizer is a debt-free, cash rich company and paid interim
dividend of Rs360 per share (3,600%) in December’13. We expect
superior performance for the merged company with strong brands and
price increase in April’14.
$ Recommendation and key risks: At the CMP of Rs1372, Pfizer trades at
19.1x FY15E EPS of Rs71.8 and 15.2x FY16E EPS of Rs90.5 and 12.7x
FY17E EPS of Rs108.0. We maintain Buy rating on the scrip with a
target price of Rs1,810 based on 19x June’16E EPS of Rs95.0 with an
upside of 31.9% from CMP. We expect the merged company to report
better performance due to its strong brands and higher bargaining
power. Pfizer continues to be our top pick in the pharma sector. Key
risks to our assumptions are stiff competition from other domestic
players and lower growth of its major brands.
Thanks & Regards
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Wyeth’s performance strong
We maintain Buy rating on Pfizer with a target price of Rs1,810 based
on 19xJune’16E EPS of Rs95.0. Though Pfizer’s Q1FY15 results were
lower than our expectations, the combined results with Wyeth were in
line with our FY15 estimates. Pfizer reported flat revenues due to
NPPP effect and the absence of Animal Health Care (AHC) business
during the quarter. The company’s EBIDTA margin improved by 330bpsYoY
to 23.4% due to overall reduction in costs. The reduction in equity
capital due to the merger with Wyeth will improve EPS. The merged
company will have 14 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.
$ Flat Revenues due to absence of AHC business: Pfizer reported flat
revenues of Rs2.66bn due to the absence of AHC sales. The pharma
segment (90% of revenues) grew by 9.9%YoY to Rs2.40bn from Rs2.18bn in
line with the industry growth of ~9.8%. 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. The AHC segment had nil revenues against
Rs193mn. We expect the company to report higher revenue growth in FY15
due to price increase of its products in April’14.
$ Good margin improvement: Pfizer’s EBIDTA margin improved by
330bpsYoY to 23.4% from 20.1% due to overall reduction in costs. The
company’s material cost declined by 190bps to 30.7% from 32.6% due to
the change in product mix and absence of low margin AHC business.
Personnel expenses declined by 40bps to 18.8% from 19.2% due to the
re-structuring of the sales force. Other expenses declined by 100bps
to 27.1% from 28.1%. We expect improvement in Pfizer’s margin from
economies of scale and better bargaining power due to the merger.
$ Net profit declines by 18%YoY: Pfizer’s net profit for the quarter
declined by 18%YoY to Rs462mn from Rs565mn due to lower sales growth,
lower other income and higher tax rate. Pfizer’s other income declined
by 67%YoY to Rs101mn from Rs305mn. Its tax rate went up to 34.0% from
31.1%. Pfizer is a debt-free, cash rich company and paid interim
dividend of Rs360 per share (3,600%) in December’13. We expect
superior performance for the merged company with strong brands and
price increase in April’14.
$ Recommendation and key risks: At the CMP of Rs1372, Pfizer trades at
19.1x FY15E EPS of Rs71.8 and 15.2x FY16E EPS of Rs90.5 and 12.7x
FY17E EPS of Rs108.0. We maintain Buy rating on the scrip with a
target price of Rs1,810 based on 19x June’16E EPS of Rs95.0 with an
upside of 31.9% from CMP. We expect the merged company to report
better performance due to its strong brands and higher bargaining
power. Pfizer continues to be our top pick in the pharma sector. Key
risks to our assumptions are stiff competition from other domestic
players and lower growth of its major brands.
Thanks & Regards
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