Thursday, May 5, 2011

Pfizer Ltd-in the pink of health !

Pfizer India is currently in its 61st year of operations.

Business segments: Human healthcare, Animal Healthcare & Clinical Development.

  • Six Pfizer brands feature among the Top 100 pharmaceutical brands in India
  • Two of Pfizer India's brands -- Corex (Cough Formulation) and Becosules (Multivitamin) -- continue to rank among the Top 10 pharmaceutical drug brands
  • Becosules has won the Most Trusted Brand Award
  • Some key products are Becosules, Corex,Magnex,Dlonex, Daxid, Minipress XL,Claribid, Lyrica
Location / People
  • Headquartered in Jogeshwari ,Mumbai
  • Over 2,300 colleagues
  • State-of-the-art manufacturing facility at Thane Belapur Road, Maharashtra
Equity : Rs.29.84 cr
Debt : Nil
Cash & cash equivalents: Rs.950 cr ( approx Rs.318 per share)
Promoter holding: 70.75%
Mid 2009, the parent had acquired 88.10 lakh minority holding shares constituting 29.52% of the paid up equity capital @ Rs.830 per share.The amount spent on the buy back was Rs.731 cr.
The company has changed its accounting year from December-November to April-March . Consequently, it announced results for the four months ended March 2011 that are not comparable to those reported for the three months ended February 2010.

Results for the16-month period from Dec 1, 2009 to March 31, 2011:

Revenue : Rs.1245 cr
Operating profit: Rs.247 cr
Other income: Rs.100 cr
PAT: Rs.226 cr
EPS ( 16-months): Rs.76.52
EPS ( annualised): Rs.57.40
Dividend: Rs.16.5 per share
Current market price: Rs.1270
Market Cap: Rs.3790 cr
Pharmaceuticals contributed about 81% ( Rs.1018 cr), Animal Healthcare contributed about 13% (Rs.159 cr) while Clinical Development services contributed about 6% ( Rs.74 cr)
Operating marging were 28% for Pharmaceuticals,19.5% for Animal Healthcare and around 11% for Clinical Development services.
The net sales for the four months ended March 2011 grew 9% (when compared on a like-to-like basis) and the net profit similarly increased by 10%. Lower-than-expected sales of Becosules and 4-5 other products was the major reason for the dull show. Becosules, as a product , involves high value raw materials.
Lower sales of Becosules have kept raw material costs low during the period. The raw material cost-to-net sales ratio has dropped to 28% against an average range of 32-37 %. This has helped the company to post high operating profit margin of 22%. Since the past couple of quarters , Pfizer's largest business segment of pharmaceuticals has been growing faster than the average industry growth rate. The company has been able to maintain the trend during the four months ended March 2011.

Background to the cash on the balance sheet:
1)      The company earned a profit of Rs.274 cr of which it paid Rs 46.2 cr as capital gains tax from the sale of the Chandigarh property and therefore the net inflow to the balance sheet was Rs 228 cr.
2)      In 2008, Pfizer India sold 4 consumer health brands viz.Listerine, Benadryl, Caladryl and Benylin - to J&J’s Indian subsidiary, Johnson & Johnson Limited for Rs 214.85 crore.

Key price drivers going ahead:

1)      Consistently-performing top brands, expansion of field force and encouraging sales of newly launched branded generics is enabling the company to outperform the industry. The company has launched five new branded generics products from therapeutic areas like diabetes, antiinfectives and animal health during the last four months. It has also recruited over 200 field staff during the same period in addition to the 500 field staff recruited in 2010.

2)      Pfizer India has new launches planned for 2011. Additionally the launches made in 2010 are doing well and contributed contributed almost about 3% of  sales revenue in 2010.Full benefit of the new launches and  the productivity of the field force and the full portfolio availability would be there around 2012.

3)      Pfizer operates in India through 2 other 100% subsidiaries- Pfizer Pharmaceutical India pvt Ltd, Pfizer Products India Pvt Ltd. The Indian listed subsidiaries accounts show about 275 cr advanced to these in the form of interest bearing loans. Pfizer , like most MNC’s has aggressive plans for India.It appears logical that over the next 2-3 years, Pfizer would prefer to delist the listed company and merge the Indian operations into one entity. Moreover,with the global buyout of Wyeth by Pfizer, Wyeth too has become a Pfizer company.

4)      Pfizer Ltd has retained nearly Rs.950 cr in the form of cash and cash equivalents.The presence of this provides the parent with an incremental cushion if it ever opts for delisting.My sense is that delisting ( if its happens) will take place at about Rs.2250-2500 per share. The parent would have to shell out between Rs.2000-2200 cr. Though this might appear high, if one considers the cash & cash equivalents on the balance sheet, its seems a reasonable sum to take the company private

At the current market price of Rs.1270, Pfizer offers an attractive entry point to investors with a 2 year plus perspective.
At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

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