Wyeth - Margin under pressure - Centrum

Wyeth's revenues for Q3FY13 were in line with our expectations but EBIDTA and net profit were below expectations due to the fall in margin and higher tax rate. The company reported 24%YoY growth in revenues, 230bps reduction in EBIDTA margin and 5%YoY growth in net profit. Wyeth's EBIDTA margin got affected due to Rs55mn provision for doubtful debt. Wyeth is a debt-free cash rich company with Rs179 cash per share. We have a Buy rating for the scrip with a revised target price of Rs1,115 (based on 15x FY1PS).

Good sales growth: Wyeth reported 24%YoY growth in revenues from Rs1.38bn to Rs1.71bn. The pharma segment (95% of revenues) grew by 27%YoY from Rs1.29bn to Rs1.63bn. The OTC segment (5% of revenues) declined by 18%YoY from Rs93mn to Rs76mn. Wyeth markets Anne French hair remover and Anacin in the OTC segment and these products are facing stiff competition.

Margin under pressure: Wyeth's EBIDTA margin declined by 230bpsYoY from 20.5% to 18.2% due to an increase in other expenses. Other expenses went up by 440bps from 33.4% to 37.8% due to Rs55mn provision for doubtful debt. Excluding this provision, the EBIDTA margin would have been 21.5%. Material cost declined by 150bps from 39.1% to 37.6% of revenues due to the change in product mix. Personnel cost declined by 50bps from 6.9% to 6.4% of revenues.

Higher tax rate: Wyeth's tax rate has gone up from 27.8% to 33.1% during the quarter.

Slow growth for four major brands: As per IMS MAT-December'12, Wyeth's four major brands reported slow growth: Folvite 0.2%, Mucaine 6.2%, Ovral-L 7.8% and Ativan -0.6%. However, Wysolone and Prevenar 13 reported excellent growth of 46.2% and 30.1% respectively. We expect Wysolone and Prevenar 13 to drive future growth.

Branded Value Offerings to drive growth: Wyeth launched six products in the 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.

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 Rs862, the stock trades at 15.3x FY13E EPS of Rs56.4 and 11.6x FY14E EPS of Rs74.3. We have revised our EPS estimates downwards by 21% and 12% for FY13 and FY14 respectively. We have a Buy rating for the scrip with a target price of Rs1,115 (based on 15x FY14E base EPS of Rs74.3) with an upside of 29.3% over CMP.

Source : Equity Bulls

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