Pfizer India - Pricing policy to hurt this quarter; Hold - Anand Rathi

Modest revenue, higher PAT. We expect a modest 3.3% yoy revenue growth in 3QFY14 due to slow growth in domestic branded formulations business. Lower growth would be primarily on account of continued pressure on its key high-value brands and new pricing policy. EBITDA margin is expected to improve 640bps yoy, to 22%, chiefly on account of lower base and higher other operating income. We expect its adjusted PAT to grow 24.8% yoy, led by better margins.

Muted revenue growth. We expect its pharmaceutical segment revenue to grow just 7% yoy due to impact of implementation of new drug pricing policy, general slowdown in domestic pharma industry and continued pressure on its key high-value products like Corex and Becolues. Clinical services & other income segment would remain largely flat during the quarter on a high base of 3QFY13.

Cash payout to improve return ratios. The company has recently paid onetime special dividend of Rs. 360 per share to reward the shareholders, which was about 25% of the current market price. This would lower the other income component, but at the same time the return ratios would increase significantly to 30%+. We view this as a positive move by the company.

Our take. We expect 8.3% revenue CAGR and 15.1% adjusted PAT CAGR over FY13-16. EBITDA margin is expected to improve 320bps to 21% over this period on account of higher proportion of domestic formulations revenue. The parent company had recently announced merger with Wyeth which would also include amalgamation of Pfizer India and Wyeth India and the merged entity would have better product portfolio and higher rank. The stock is currently trading at 15.2x FY14e and 13.8x FY15e earnings. We maintain Hold, with target of Rs. 1,318, based on 16x FY15e earnings. Risks. Implementation of the proposed pharma pricing policy in India.

Source : Equity Bulls

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