Pfizer - Cost control lifts margin Rs4,371 - ICICI Securities

Pfizer Limited (PFL) reported an operationally strong quarter performance in Q1FY21. Revenue declined 5.4% YoY to Rs5.1bn (I-Sec: Rs5.6bn) impacted by divestment of two brands in Q3FY20 and lockdown due to COVID-19. EBITDA margin jumped 570bps YoY (+1450bps QoQ) to 36.2% (highest in several quarters) with sharp fall in expenses. Adjusted PAT grew 10.3% YoY to Rs1.2bn (I-Sec: Rs1.0bn). Revenue disparity between primary and secondary sales continues with AIOCD data suggesting revenue growth of 4.1%. 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 ADD.

- Strong operational performance: Revenue was impacted due to COVID-19 led lockdown and loss of sales from the divested brands. However, company managed to curtail costs resulting in strong operational performance. Gross margin improved 60bps YoY (+360bps QoQ) aided by recognition of some spillover revenue (~Rs500mn) from Q4FY20. Employee cost remained flat YoY (-14.7% QoQ) while S,G&A expenses declined sharply by 34.6% YoY (-35.9% QoQ). This resulted in EBITDA rising 12.1% YoY (+71.4% QoQ) to Rs1.9bn and margin jumping 570bps YoY (+1450bps QoQ). Subsequently, adjusted PAT grew 10.3% YoY (+27.0% QoQ) despite lower other income and higher tax rate.

- Key products performance: As per AIOCD data PFL has reported a growth of 4.1% driven by its top ten products. Becosules, Gelusil MPS, Minipress XL, Mucaine, Corex DX and Wysolone have reported strong double digit YoY growth of 19.6%, 18.4%, 47.3%, 26.8%, 38.8% and 19.2% respectively. Dolonex also reported a healthy YoY growth of 13.8%. Magnex, Meronem and Prevenar 13 reported a decline of 38.1%, 24.5% and 12.0% YoY for the quarter with reduced footfalls in OPDs. Eliqius reported a growth of 17.1% YoY for the quarter despite its patent expiry and entry of a competitor in Dec'19. Remaining products reported a decline of 1.0% during the quarter.

- Outlook: We believe that revenue would remain subdued in the near term impacted by COVID-19 as the company's product portfolio is largely acute (~75%). Although operating leverage would drive margin improvement of 360bps over FY20-22E 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 ~Rs13bn over FY21E-FY22E.

- Valuations and risks: We maintain our estimates and ADD rating with a target price of Rs4,705/share based on 35xFY22E EPS. Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company.

Shares of PFIZER LTD. was last trading in BSE at Rs.4312.45 as compared to the previous close of Rs. 4371. The total number of shares traded during the day was 7563 in over 2012 trades.

The stock hit an intraday high of Rs. 4444 and intraday low of 4299.25. The net turnover during the day was Rs. 32982283.

Source : Equity Bulls

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