Pfizer, Q3FY13 Result Update :: Centrum

Disappointing results
Pfizer reported disappointing results for Q3FY13, showing a decline of 5%YoY in revenues, 370bps in EBIDTA margin and 11%YoY in net profit before EO items. The sales growth of the pharma segment was 1% due to slower growth of four key brands, Corex, Becosules, Gelusil and Dolonex. The introduction of new products in the domestic market is likely to drive growth. We have a Buy rating for the scrip with a revised target price at Rs1,290 (based on 17x FY14E EPS of Rs75.9) with an upside of 16.9%.
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Slow domestic growth: Pfizer reported 5%YoY decline in total revenues from Rs2.70bn to Rs2.57bn due to slower growth of the pharma business and divestment of AHC business. The pharma business (86% of revenues) grew by 1%YoY from Rs2.18bn to Rs2.20bn. AHC revenues were ‘nil’ against Rs340mn. The services business grew by 100%YoY from Rs183mn to Rs366mn.
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Margin under pressure: Pfizer’s EBIDTA margin declined by 370bps YoY from 19.3% to 15.6% mainly due to the increase in personnel cost. Material cost declined by 30bps from 30.5% to 30.2% of revenues due to the change in product mix with the absence of AHC products. Personnel cost grew by 340bps YoY from 17.8% to 21.2% due to increase in field force and revision in salaries. Other expenses grew by 40bps from 32.5% to 32.9% due to higher marketing expenses.

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Divestment of AHC business: Pfizer transferred in Dec’12 the full ownership of its 100% subsidiary Pfizer Animal Pharma Pvt. Ltd. to Pfizer Animal Health India Ltd., a 100% subsidiary of Pfizer Inc. The gain on sale of investment of Rs316mn (Rs206mn post tax) was shown as EO item.
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Four brands have good growth: As per IMS MAT-Dec’12, Pfizer grew by 7.9% against the industry growth of 11.1%. Its major brands grew as follows: Corex 8.4%, Becosules 2.1%, Dolonex 4.7%, Gelusil 0.7% and Minipress-XL 16.1%. This indicates the four major brands had lower than market growth.
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Valuations: We expect Pfizer to benefit from good growth of BVO products and the introduction of new products. We have revised our FY13 and FY14 EPS downward by 14% and 3% respectively. At the CMP of Rs1,145, the stock trades at 19.6x FY13E EPS of Rs58.6 and 15.1x FY14E EPS of Rs75.9. We have a Buy rating for the scrip with a target price at Rs1,290 (based on 17x FY14E EPS of Rs75.9) with an upside of 12.6%.