>PFIZER: Q1FY13 Result Update/

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

>MARUTI SUZUKI LIMITED: Manesar plant to resume production from August 21 under heavy security cover

Manesar plant to resume production from August 21 under heavy security cover
In a press conference today, Maruti announced that it will resume production at its Manesar plant from August 21 under heavy security cover. With this resumption, the shutdown will have lasted for around 1 month – broadly in-line with what we were building into our numbers. As per an investigation conducted by the company, they will fire 500 regular workers who were involved in the misconduct on 18 July. Further, the company will no longer employ contract workers on the production line; however, MSIL will keep 20% of the total workforce on short-term agreements. According to today’s announcement, current contract workers (1,869 employees) will be given an opportunity to join the company as regular (ie, permanent/non-contract) workers provided they meet the company requirements.

Production will get ramped up gradually
As per the company, about 300 workers will resume production from August 21; the company will aim to manufacture 150 cars daily initially as compared to full capacity of around 1,600 cars daily. Production will increase gradually as the company hires more workers, in our view. If everything goes smoothly, we believe the company may take another month to achieve full production. In our view, the company may be able to largely make up for lower production later on during the year. Hence, our estimates are unchanged at this stage.

Do not expect significant stock reaction; maintain Neutral
We believe expectations around the resumption of production have been built in to the share price from last week. Therefore, we do not expect any significant stock reaction on this announcement. Maintain Neutral.

To read report in detail: MARUTI SUZUKI

>TATA MOTORS LIMITED (SUNIDHI SECURITIES)

In line performance, JLR reported 110 bps YoY expansion in EBIDTA margin
As per our expectation TML reported healthy operating performance in Q1FY13 led by stellar performance in JLR business (110 bps YoY expansion in EBIDTA margin to 14.5%). However its standalone business showed muted performance (170 bps YoY contraction in EBIDTA margin to 6.6%).

Reported EBIDTA at `57.5 bn close to our estimates of `55.7bn
We believe that healthy volume growth in JLR business (34.4% YoY), favourable currency movement (average GBP/Re at 85.8 in Q1FY13 against 72.9 in Q1FY12) and increase in volumes in China (China contributed 21.5% to the total volumes in Q1FY13 against 15.7% in Q1FY12), helped TML to report healthy performance in Q1FY13. Revenue increased by 30.1% YoY to `433.2 bn (against estimates of `430.3bn).EBIDTA increased by 35.9% YoY to `57.5 bn (against estimates of `55.75 bn). EBIDTA margin expanded by 60 bps YoY to 13.3% (against our expectation of 13%).APAT increased by 30.6% YoY to `26.8bn (against our estimates of `27.2bn). It is to be highlighted that JLR board has proposed a dividend of GBP 150 mn to Tata Motors (parent company), which will likely to be paid off in August 2012.

Not offering discounts in JLR but indicated a caution on EBIDTA margin front
The management has indicated that currently they are not offering any kind of discounts (according to media reports, its competitors are offering) to its customers (including China market). However the management has not ruled out the possibility of increase in marketing cost in coming future due to increase in competitive pressure. Further management has shared a cautious optimistic outlook on EBIDTA margin front. Hence in anticipation of pressure on margin, we have tweaked our JLR’s EBIDTA margin expectation to 14.5% for FY13E.

Maintain outperform rating with target price of `297 
In Q1FY13 TML’s operating performance was in line with our expectation. Post Q1FY13 result, we maintain our FY13E volume estimates for JLR at 364k units and standalone business at 967k. However, we tweaked conso EBIDTA margin expectation to 12.6% (from 13%) for FY13E on lowering JLR’s EBIDTA margin expectation to 14.5% from 15.2% (in line with its current EBIDTA margin).With this we maintain our Outperform rating on the stock with target price of `297 (earlier `307). At our target price stock would trade at 5.0xFY13E conso EV/EBIDTA and 4.5xFY14E conso EV/EBIDTA.

RISH TRADER

>BHARTI AIRTEL: FY12 Annual Report

Key Highlights:
 While Africa business proforma revenue growth at aggregate level remained strong at ~25% in INR terms (~19% in USD terms) in FY12, there was significant divergence in the performance at the individual country-level. As per our proforma estimates, Bharti Africa witnessed ~35%+ USD revenue growth in Sierra Leone, Ghana, Uganda, and DRC (together contribute 18% of Africa revenue). However, proforma revenue growth is estimated to be single-digit/negative for Chad, Niger, Seychelles, Madagascar, Kenya, Malawi and Congo B (together constitute 21% of Africa revenue).

 Gross debt remains largely USD denominated (70%) followed by INR (19%) and other currencies (11%). Debt schedule indicates relatively high re-payment in FY13 with 28% of overall gross debt (INR193b) having maturity period of less than one year. However leverage remains relatively comfortable with FY12 net debt/EBITDA at 2.75x.

 Only ~9% of the overall borrowings for Bharti are at a fixed rate implying that interest rates remain key earnings variable. Every 1% increase in USD (INR) interest rate would have impacted Bharti's FY12 PBT by INR4.8b (INR1b).

 Earnings sensitivity to exchange rate remains high as well with adverse impact of INR4.6b on FY12 PBT (7%) for a 5% appreciation in USD assuming all other variables remained constant.

 Contingent liabilities have increased significantly during FY12 largely due to increased tax-related disputes. Contingencies increased 81% YoY to INR55.5b in FY12.

 We expect 14% EBITDA CAGR for Bharti over FY12-14E. The stock trades at EV/EBITDA of 6.5x FY13E and 5.3x FY14E.

 Maintain Buy with a target price of INR370 based on 7.5x FY14 EV/EBITDA for India & SA business, 5x EV/EBITDA for Africa business and INR142b impact for potential regulatory outlay.

To read report in detail: BHARTI AIRTEL