>PFIZER

Slower sales growth affects results

Pfizer results for Q1FY13 were lower than our expectations. The company reported 7%YoY decline in revenues, 270bps decline in EBIDTA margin and 41%YoY decline in net profit due to lower growth of pharma business and the divestment of animal healthcare (AHC) business. The sales growth of the pharma segment was 4%YoY due to slower growth of three key brands. The introduction of new products in the domestic market is likely to drive growth. Pfizer is a debt free company with cash per share of Rs300. We have revised the rating from Buy to Neutral with a target price of Rs1,325 (based on 17x FY14E EPS of Rs77.9) with an upside of 4.9%.
 
■ Slow domestic growth: Pfizer reported 7%YoY decline in total revenues from Rs2.61bn to Rs2.43bn due to the slower growth of pharma business and divestment of AHC business to a 100% subsidiary. The pharma business (90% of revenues) grew by 4%YoY from Rs2.10bn to Rs2.18bn. AHC revenues were ‘nil’ against Rs315mn.

 ■ Margin under pressure: Pfizer’s EBIDTA margin declined by 270bpsYoY from 16.0% to 13.3% due to the rise in personnel cost and other expenses. Material cost declined by 280bps from 32.6% to 29.8% of revenues due to the change in product mix and the absence of AHC products. Personnel cost increased by 100bps YoY from 22.3% to 23.3% due to lower sales growth. Other expenses were up by 450bps from 29.1% to 33.6% due to the additional expenses of Rs15mn related to the contract field force and brokerage of Rs20mn related to the new office.


■ Sale of AHC business: Pfizer sold its AHC business to a 100% subsidiary Pfizer Animal Pharma Pvt. Ltd for Rs4.24mn. The company reported a gain of Rs3.83bn from the sales. After providing for capital gains tax of 20%, the balance amount of Rs3.06bn appears as EO item. The sales proceeds are likely to generate more interest than the EBIDTA generated by AHC business.

■ Leading brands have slower growth: As per IMS MAT-June’12, three major brands have lower growth rates. These are: Becosules (2.2)%, Gelusil-MPS 5.6% and Magnex (2.8)%. The slowdown in Becosules is attributed to the trade scheme in Q4FY12 and that for Gelusil due to slowdown of the category.
 
■ Valuations: We expect Pfizer to benefit from good growth in the domestic market and from the introduction of new products. We have lowered our EPS estimates by 4% for FY13 and 3% for FY14. At the CMP of Rs1,263, the stock trades at 18.6x FY13E EPS of Rs68.1 and 16.2x FY14E EPS of Rs77.9. We have revised the rating from Buy to Neutral with a target price of Rs1,325 (based on 17x FY14E EPS of Rs77.9) with an upside of 4.9%



RISH TRADER