Wyeth - Margin affected by rupee depreciation - Centrum

Wyeth's results for Q4FY13 were in line with our expectations. The company reported 19%YoY growth in revenues, 910bps drop in EBIDTA margin and 19%YoY decline in net profit. Wyeth's margin was affected by the rise in the material cost and other expenses. The company's material cost grew by 580bps due to the rise in imported material cost with depreciating rupee. Other expenses were up by 350bps due to Rs59.4mn provision for doubtful debt. Wyeth is a debt-free company with cash/share of Rs194. We have a Buy rating for the scrip and has revised target price from Rs1,115 to Rs1,224 (based on 15x Sept'14 EPS of Rs81.6).

- Excellent sales growth: Wyeth reported 19%YoY growth in revenues from Rs1.53bn to Rs1.82bn in Q4FY13. The pharma segment (95% of revenues) grew by 15.4%YoY from Rs1.50bn to Rs1.73bn. Its others business (5% of revenues) grew by 7%YoY from Rs89mn to Rs95mn. The company markets OTC products Anacin and Anne French Hair Remover in the others segment.

- Sharp fall in margin: Wyeth's margin for Q4FY13 declined by 910bps YoY from 33.2% to 24.1% of total revenues due to the rise in material cost and other expenses. Its material cost increased by 580bps from 35.6% to 41.4% of net sales due to the rise in imported material cost with the depreciating rupee. Wyeth imports Prevenar- 13 in the finished form and active ingredient hormones. Personnel cost declined by 20bps due the sharp revenue growth. Other expenses went up by 350bps from 26.0% to 29.5%. Other expenses included provision of Rs59.4mn for doubtful debts in respect of fraud.

- Higher tax rate: Wyeth's tax rate for the quarter went up from 30.5% to 32.2% of PBT as the company has no tax shelter. Wyeth is a debt-free, cash rich company with cash/share of Rs194. We expect the company to generate additional interest income as it does not have major capex.

- Growth rate of major brands: As per IMS MAT-March'13 data, six brands of Wyeth appear in the list of top 300 brands. Two of these brands are growing faster than the market growth rate of 10.1%. These are: Wysolone Revenues Rs597mn Gr. Rate 35.8% and Prevenar-13 revenues Rs387mn and growth rate 17.1%. These brands are likely to drive future growth of the company.

- Valuations: We expect Wyeth to benefit from the good growth in the domestic market in anti allergic and vaccines segments. At the CMP of Rs819, the stock trades at 11.0x FY14E EPS of Rs74.3 and 9.2x FY15E EPS of Rs88.9. We have a Buy rating for the scrip with a revised target price of Rs1,224 (based on 15x Sept'14 EPS of Rs81.6) with an upside of 49.4% over CMP.

Source : Equity Bulls

Keywords