>PFIZER (HDFC SECURITIES)

For Q2FY09, Pfizer is expected to report 15%YoY growth in net sales from Rs1.63bn to Rs1.88bn due to good growth in both pharma and animal healthcare (AHC) segments. The pharma segment is expected to grow by 15%YoY and the AHC segment by 16%YoY. We expect 270bps decline in EBIDTA margin from 22.6% to 19.9%. This is mainly due to the 470bps rise in other expenses from 26.7% to 31.4% of net sales. We expect marginal decline of 1% in net profit from Rs386m to Rs383m.

Outlook & Valuation
For Q2FY09, we expect 15%YoY growth in the pharma segment from Rs1.30bn to Rs1.50bn. We expect the AHC segment to grow by 16%YoY from Rs199m to Rs230m. Pfizer’s EBIDTA margin is expected to decline 270bpsYoY from 22.6% to 19.9% mainly due to the increase in other expenses from 26.7% to 31.4% of net sales. The net profit is expected to decline marginally by 1% from Rs386m to Rs383m.

The rise in other expenses is due to the increase in marketing expenses for new product launches. Pfizer launched Champix (for stopping smoking), Cyclokapron (reduces blood flow during surgery) and Bovicon (increases milk secretion in animals) in FY08. In the current year, it has launched Acupil (anti-hypertensive) and Trulimax (antibiotic).

Pfizer is likely to merge with Wyeth in India in line with the international merger. We expect the merged company to rank 8th in the domestic pharma market and 2nd among MNC pharma companies after Glaxo SmithKline. As per ORG IMS data of April’08, the merged company would have sales of over Rs10.8bn, market share of 3.0% and growth rate of 11.6% in the domestic market. The merged company is likely to derive synergies from the merger and re-structuring. The merged entity would have higher EBIDTA margin as Wyeth has higher margins than Pfizer.

We expect Pfizer to report 11% CAGR in sales and 13% CAGR in net profit from FY08-FY10. We expect its EBIDTA margin to improve from 21.5% to 22.6% during the same period. We expect Pfizer’s RoCE to decline from 18.0% to 16.7% and its RoE to decline from 17.6% to 16.5% from FY08-FY10. We recommend BUY on the scrip with a price target of Rs993 (17x FY10 EPS) with an upside of 21% over next 12 months.

Major developments
• During the quarter, Pfizer, US acquired Wyeth, US for $68bn (Rs3,305bn). The global acquisition is likely to be completed in H2CY09. In line with the international merger, we expect the two subsidiaries of the parent companies to merge in India.

• The merged entity would have sales of over Rs10.8bn and MS of over 3.0%. It is expected to grow over 11.6% in the domestic market. Since Wyeth has higher EBIDTA margin compared to Pfizer, the EBIDTA margin of the merged entity is likely to improve.

• Pfizer Inc, US has made an open offer through its investment subsidiary to acquire 33.77% stake in Pfizer at Rs675 per share. The offer price was revised to Rs830 on 25th June’09. After successful completion of the open offer, the shareholding of the parent company is likely to increase from 41.2% to 75%.

• About 25% of Pfizer’s sales come from price-controlled products.

• The management expects a double-digit growth in FY09.

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