Pfizer - VMN helps in faster recovery - ICICI Securities

Pfizer Limited (PFL) reported an operationally strong performance in the quarter, largely in line with our estimates. Revenue grew 5.0% YoY to Rs6.0bn (I-Sec: Rs6.1bn) as company is benefiting from its vitamins/minerals/nutrients (VMN) portfolio in the current environment. EBITDA margin jumped 570bps YoY to 34.2% (I-Sec: 33.9%) with expenses remaining subdued due to lockdown. Adjusted PAT declined 14.8% YoY to Rs1.3bn (I-Sec: Rs1.5bn) due to lower other income. Data of secondary sales from AIOCD suggests a revenue growth of 6.2% in the quarter. We remain positive on the company's growth visibility with exposure only in domestic formulations and strong balance sheet with deep cash reserves, however, pressure due to COVID-19 would restrict growth in the near term as the company's product portfolio is largely acute (~75%). Maintain HOLD.

- Strong performance: Revenue has partially recovered from the impact of COVID-19 led lockdown due to high demand in the VMN portfolio of the company. Growth in its key products aided gross margin expansion by 130 bps YoY. Simultaneously, company managed to control employee and S,G&A costs (partially due to lockdown) supporting operational performance. Employee cost remained flat YoY and QoQ while S,G&A expenses declined 12.3% YoY although it jumped 44.5% QoQ with easing of lockdown. This resulted in EBITDA rising 23.9% YoY (+9.2% QoQ) to Rs2.0bn and margin jumping 520bps YoY. However, other income saw a sharp decline of 72.8% YoY and 29.4% QoQ impacting PAT which dropped 14.8% YoY.

- Key products performance: As per AIOCD data PFL has reported a growth of 6.2% driven by its top ten products. Becosules, Gelusil MPS, Minipress XL, Mucaine, and Wysolone have reported strong double digit YoY growth of 24.5%, 13.8%, 13.2%, 25.7% and 16.4% respectively. While Dolonex and Corex DX remained flattish YoY Magnex, Meronem and Prevenar 13 reported a decline of 19.3%, 26.0% and 18.5%. Eliqius reported a growth of 84.2% YoY for the quarter despite its patent expiry and entry of a competitor in Dec'19. Remaining products reported a growth of 7.0% during the quarter.

- Outlook: We believe that business would continue its recovery in the coming months led by its VMN portfolio but still remain subdued in the near term as the company's product portfolio is largely acute (~75%). Although operating leverage would drive margin improvement of 650bps over FY20-23E we don't expect current margin level to sustain and would reverse in the coming quarters as costs rise with higher sales. Healthy performance with minimal capex requirement would generate a free cashflows of ~Rs21bn over FY21E-FY23E.

- Valuations and risks: We reduce our EPS estimates by 2-5% to factor in lower other income. Maintain HOLD rating with a revised target price of Rs4,963/share based on 35xSep'22E EPS (earlier: Rs5,085). Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company. Key upside risks are: faster than anticipated recovery and launch of new products.

Shares of PFIZER LTD. was last trading in BSE at Rs.4960 as compared to the previous close of Rs. 4985. The total number of shares traded during the day was 2091 in over 668 trades.

The stock hit an intraday high of Rs. 5043.15 and intraday low of 4950. The net turnover during the day was Rs. 10420454.

Source : Equity Bulls

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