Q3FY12 Result Update Pfizer Buy Target Price: Rs1,483 ::Centrum

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Q3FY12 Result Update

Pfizer

Buy

Target Price: Rs1,483

CMP: Rs1,224

Upside: 21%

Lower sales growth, better margins

Pfizer’s Q3FY12 numbers were below our expectations due to 4%YoY sales growth. The company’s EBIDTA margin improved by 70bps and net profit grew by 11%YoY. Pfizer has realigned its marketing team with the addition of 200 MRs from Wyeth and created a new marketing team for the diabetes segment. The recently introduced insulin brands are doing well in the domestic market. Pfizer has established a 100% subsidiary to hive off its animal healthcare (AHC) business in line with the global re-structuring of AHC business.  We reiterate Buy with a target price of Rs1483 (based on 19x FY13 EPS).

m  Lower sales growth of pharma division: During the quarter, Pfizer reported 4%YoY growth in total revenues from Rs2.61bn to Rs2.71bn due to lower sales from the pharma division. The results are strictly not comparable as the previous quarter ended Nov’10. Pharma sales (81% of revenues) grew by 6%YoY from Rs2.06bn to Rs2.18bn. AHC sales (12% of revenues) grew by 13%YoY from Rs302mn to Rs340mn. However, clinical services (7% of revenues)  revenues declined by 27%YoY from Rs249mn to Rs183mn.

m  Margin improves by 70bps: Pfizer reported 70 bps YoY improvements in EBIDTA margin from 18.5% to 19.2% mainly due to the decline in material cost and other expenses. Its material cost declined by 240bps YoY from 32.8% to 30.4% of total revenues due to the change in product mix. Its personnel cost increased by 270bps YoY from 15.1% to 17.8% of total revenues due to the addition of field force and transfer of 200 MRs from Wyeth. Pfizer’s other expenses declined by 100bps YoY from 33.6% to 32.6% due to improvement in productivity of field force. The company’s net profit grew by 11%YoY from Rs436mn to Rs483mn due to margin improvement & rise in other income.

m  Good upside from insulin products: Pfizer has successfully launched two insulin brands in the domestic market. The company sources these products from Biocon. Pfizer has created a dedicated field force for the anti-diabetic segment and has plans to launch more products in this segment. It is also giving a thrust to its hospital business and rural marketing.

m  Growing in line with the market: As per IMS MAT-November’11, Pfizer grew by 14% in line with the market growth of 14%. Eight of the company’s products appear in the list of top 300 brands in the domestic market. Pfizer’s Lyrica and Claribid grew by 28% and 37% respectively in the domestic market.

m  Hives off AHC business:  In line with the international re-structuring to focus on pharma business, Pfizer has created a 100% subsidiary to hive off its AHC business. The AHC business contributes around 12% to the consolidated revenues.

m  Merger with Wyeth: In line with the international merger, Wyeth would merge with Pfizer in India. The merged company would rank 9^th in the domestic market and 4^th among MNC pharma companies in India. The merged company would have 13 products in the top 300 products (8 from Pfizer and 5 from Wyeth).

m  Reiterate Buy: We have maintained our EPS estimates for FY12 and for FY13.  We expect the company to benefit from good growth of its brands, launch of new products in the domestic market and expected merger of Wyeth. At the CMP of Rs1224, the stock trades at 18.8x FY12E EPS of Rs65.2and 15.7x FY13E EPS of Rs78.0. We reiterate Buy with a target price of Rs1483 (based on 19x FY13E EPS).

Thanks & Regards,