Saturday, August 4, 2012

>WYETH: Leading player in oral contraceptive segment (Q1FY13 RESULT UPDATE)

Margins affected by weak rupee

Wyeth’s results for Q1FY13 were below our expectations. The company reported 14%YoY growth in revenues, 840bps reduction in EBIDTA margin and 8%YoY decline in net profit. Wyeth’s EBIDTA margin got affected by the weakening of rupee which had a bearing on imported raw material cost. The company’s material cost increased by 650bps YoY. Wyeth launched Prevenar 13 for adult usage during the quarter and hence the launch expenses were included in the other expenses. Wyeth is a debt-free cash rich company with Rs160 cash per share. We have a Buy rating for the scrip with a target price of Rs1,355 (based on 15x FY14E EPS).

Sales growth in line with the industry: Wyeth reported 14%YoY growth in revenues from Rs1.48bn to Rs1.68bn in line with the industry growth of 15%. The pharma segment (93% of revenues) grew by 14%YoY from Rs1.38bn to Rs1.57bn. The OTC segment (7% of revenues) grew by 13%YoY from Rs100mn to Rs113mn. Wyeth markets Anne French hair remover and Anacin in the OTC segment.
Sharp drop in Margin: Wyeth’s EBIDTA margin declined sharply by 840bpsYoY from 37.7% to 29.3% due to the increase in the material cost and other expenses. Material cost increased by 650bps from 31.7% to 38.2% of revenues due to the increase in imported material cost with the depreciation of rupee against the dollar. Other expenses increased by 230bpsYoY from 24.1% to 26.4% due to the launch expenses of Prevenar 13 for adult usage.

Branded value offerings: Wyeth launched six products in Branded Value Offering (BVO) segment. These are: Menocare 100, Menocare 200, Doris, Tussivil, Folvite MB and Pausera. These products are likely to drive future growth of the company.

Leading player in oral contraceptive segment: Wyeth is the market leader in the oral contraceptive (OC) segment and has over 23% MS in the OC segment. Its flagship brand Ovral-L has reported ~32% growth.

Valuations: We expect Wyeth to benefit from good growth in the domestic market, recent launch of BVO products and Prevenar 13 for adult use. At the CMP of Rs926, the stock trades at 12.2x FY13E EPS of Rs76.0 and 10.3x FY14E EPS of Rs90.3. We have a Buy rating for the scrip with a target price of Rs1,355 (based on 15x FY14E base EPS of Rs90.3) with an upside of 46.3% over CMP.