In s titu tio n a l E q u itie s

Pfizer
28 July 2020
Reuters: PFIZ.NS; Bloomberg: PFIZ IN

Margins expansion helps net earnings growth despite revenue decline NBIE Values your patronage- Vote for The
Team in the Asia Money poll 2020. Click
Pfizer reported revenue of Rs5,149mn in 1QFY21, 8.8% above ours and 7.3% below consensus Here
estimate. On YoY basis, revenue was down 5.4% as the COVID pandemic led to lower demand for its
hospital anti infective portfolio and vaccine (Prevnar). Considering higher exposure of Pfizer in the SELL
anti-infective space, we had assumed a low teen decline for Pfizer earnings, in line with IPM growth Sector: Pharmaceuticals
during the quarter. During the quarter anti infective segment in IPM had declined high teens.
However, the revenue decline happened to be much softer around 5%. We believe potentially a CMP: Rs4,343
significant increase in demand of products to raise immunity would have helped their vitamin &
Mineral portfolio (Becosule franchise). During the year (FY21), Pfizer would also see the impact of loss Target Price: Rs3,512
in sales from 5 brands (Lyrica, Amlogard, Daxid, Viagra, Fumycin and Dilantin), which are part of the
divestment that Pfizer India will make as part of the proposed merger of Mylan and Upjohn. These Downside: 19%
brands are currently part of reported revenue as the transaction is not yet closed. These brands
Vishal Manchanda
1QFY21 Result Update

together comprise 5% of Pfizer revenue.

EBITDA for the quarter stood at Rs1,863mn, above our/consensus estimates by 70.4%/45.9%, Research Analyst
respectively. EBITDA increased by 12.1% YoY and 71.4% QoQ. EBTIDA margins stood at 36% which [email protected]
are at record high levels and higher 600bps on a YoY basis. The margin expansion has come despite a +91 9737437148
5% revenue decline on a YoY basis. 1QFY21 margin was up QoQ and YoY due to lower-than-expected
raw material costs, employee costs and other expenses. Other expenses were lower 35% QoQ. The Gaurang Sakare
lower spend may be attributable to lower expenses towards field force, promotion and travelling. Research Associate
Gross margins were higher 50bps YoY. [email protected]
Net profit for the quarter stood at Rs1,245mn, which was above our/consensus estimates by +9122 6273 8093
35.7%/19.9%, respectively. Net profit grew despite revenue decline on back of higher EBITDA margins.
The beneficial effect of operating margin expansion was diluted by lower other income which was Key Data
down 50% YoY. The effective tax rate stood at 28.2%. On a sustainable basis, the effective tax rate will Current Shares O/S (mn)
45.7
stand at 25%. Net profit increased by 20.8% QoQ and by 10.3% YoY. Net profit margin at 24.2% was up
by 365bps QoQ. Mkt Cap (Rsbn/US$bn) 199.8/2.7
We maintain our estimates and value the company at 27x FY22E EPS to arrive at a Target Price of 52 Wk H / L (Rs) 4,999/2,612
Rs3,512 with sell rating. Daily Vol. (3M NSE Avg.) 88,108
Outlook and valuation: We expect Pfizer’s revenue to grow at 10% outperforming the IPM. We expect
Price Performance (%)
EBITDA to grow faster, while PAT should grow slower largely because of lower other income due to onetime
dividend of Rs320 resulting in lower cash on balance sheet. The key revenue drivers will be its flagship brands 1M 6M 1 Yr
such as Becosules, Corex and Prevnar. Among the recent new launches, we believe Eliquis and Xeljanz have
Pfizer 6.5 7.3 47.3
the potential to scale up and become power brands over time. However, recently we have seen generic
competition coming up for Eliquis, which can potentially affect the peak potential opportunity for Pfizer. Natco Nifty Index 7.2 (8.1) (1.4)
Pharma has launched a copy of Eliquis at 66% discount. The revenue trajectory can accelerate if Pfizer is
able to source new launches from its parent portfolio. Faster-than-expected expansion of the universal Source: Bloomberg
immunization program against pneumonia is the key risk to Pfizer because the same can have implication on Latest Annual Report
its largest portfolio drug – Prevnar. Latest Quarterly MD&A
Y/E March (Rsmn) 1QFY20 4QFY20 1QFY21 YoY (%) QoQ (%) FY19 FY20 YoY (%)
Revenues from operations 5,444 5,020 5,149 (5.4) 2.6 20,815 21,517 3.4
Raw material costs 1,910 1,912 1,776 (7.0) (7.1) 7,479 7,924 5.9
% of revenues 35.1 38.1 34.5 (60) bps (359) bps 35.9 36.8 90 bps
Staff costs 876 1,007 859 (2.0) (14.7) 3,238 3,645 12.6
% of revenues 16.1 20.0 16.7 58 bps (337) bps 15.6 16.9 138 bps
Other expenses 995 1,015 651 (34.6) (35.9) 4,446 4,222 (5.0)
% of revenues 18.3 20.2 12.6 (563) bps (757) bps 21.4 19.6 (174) bps
EBITDA 1,662 1,087 1,863 12.1 71.4 5,652 5,726 1.3
EBITDA margin (%) 30.5 21.7 36.2 565 bps 1453 bps 27.2 26.6 (54) bps
Other income 358 452 172 (52.0) (62.0) 1,674 1,840 9.9
Interest costs 22 36 30 40.0 (16.9) 13 109 741.1
Depreciation 250 284 271 8.6 (4.5) 714 1,032 44.6
PBT 1,749 1,219 1,733 (0.9) 42.2 6,599 6,425 (2.6)
Tax 621 189 489 (21.3) 158.8 2,309 1,334 (42.2)
Tax rate (%) 35.5 15.5 28.2 (730) bps 1271 bps 35.0 20.8 (1423) bps
PAT 1,128 1,030 1,245 10.3 20.8 4,291 5,091 18.7
PAT margin (%) 20.7 20.5 24.2 345 bps 365 bps 20.6 23.7 305 bps
Source: Company, Nirmal Bang Institutional Equities Research
 In s titu tio n a l E q u itie s

Exhibit 1: Actual performance versus our estimates, Bloomberg consensus estimates

(Rsmn) Actual NBIE estimate Var.(%) Consensus estimate Var.(%)
Revenues 5,149 4,734 8.8 5,553 (7.3)
EBITDA 1,863 1,093 70.4 1,277 45.9
EBITDA margin (%) 36.2 23.1 1308 bps 23.0 1318 bps
PAT 1,245 917 35.7 1,038 19.9
PAT margin (%) 24.2 19.4 480 bps 18.7 548 bps
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Key financials

Y/E March (Rsmn) FY18 FY19 FY20 FY21E FY22E
Net sales 19,802 20,815 21,517 23,668 26,035
EBITDA 5,003 5,652 5,726 6,848 7,903
Net profit 3,601 4,290 5,091 4,922 5,950
EPS (Rs) 78.7 93.8 111.3 107.6 130.1
EPS growth (%) 6.9 19.2 18.7 (3.3) 20.9
EBITDA margin (%) 25.3 27.2 26.6 28.9 30.4
P/E (x) 55.2 46.3 39.0 40.4 33.4
P/BV (x) 7.4 6.6 5.9 8.4 6.8
EV/EBITDA (x) 36.2 31.8 30.8 27.1 22.8
RoCE (%) 17.0 17.3 14.6 20.2 26.0
RoE (%) 14.1 15.1 15.9 17.1 22.4
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Revised Estimates

Particulars (Rsmn) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Revenue 5,200 5,123 5,197 5,138 5,357 5,444 5,671 5,382 5,020 5,149
Gross Profit 3,258 3,279 3,169 3,370 3,519 3,534 3,576 3,374 3,109 3,373
EBITDA 1,385 1,301 1,298 1,543 1,510 1,662 1,642 1,334 1,087 1,863
EBIT 1,212 1,118 1,120 1,366 1,334 1,412 1,391 1,087 803 1,592
PBT 1,525 1,422 1,489 2,006 1,682 1,749 1,812 1,645 1,219 1,733
PAT 1,045 918 958 1,319 1,095 1,128 1,543 1,391 1,030 1,245

Margins (%) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Gross Profit 62.7 64.0 61.0 65.6 65.7 64.9 63.1 62.7 61.9 65.5
EBITDA 26.6 25.4 25.0 30.0 28.2 30.5 29.0 24.8 21.7 36.2
EBIT 23.3 21.8 21.6 26.6 24.9 25.9 24.5 20.2 16.0 30.9
PBT 29.3 27.8 28.6 39.0 31.4 32.1 32.0 30.6 24.3 33.7
PAT 20.1 17.9 18.4 25.7 20.4 20.7 27.2 25.8 20.5 24.2
Source: Nirmal Bang Institutional Equities Research

2 Pfizer
 In s titu tio n a l E q u itie s

Financial statements
it 1: Exhibit 4: Income statement Exhibit 4: Exhibit 5: Cash flow
Y/E March (Rsmn) FY18 FY19 FY20 FY21E FY22E Y/E March (Rsmn) FY18 FY19 FY20 FY21E FY22E
Net sales 19,802 20,815 21,517 23,668 26,035 PBT 5,479 6,599 6,425 6,578 7,952
% growth (3.0) 5.1 3.4 10.0 10.0 (Inc.)/dec. in working capital 708 -2,202 -229 -404 -691
Raw material costs 7,397 7,479 7,924 8,521 9,373
Cash flow from operations 6,187 4,397 6,196 6,174 7,261
Staff costs 3,143 3,238 3,645 3,937 4,252
Other income -1,169 -1,661 -1,732 -741 -1,061
Other expenses 4,259 4,446 4,222 4,363 4,508
Total expenditure 14,799 15,163 15,791 16,820 18,132 Depreciation 663 714 1,032 1,012 1,012
EBITDA 5,003 5,652 5,726 6,848 7,903 Tax paid (-) -1,878 -2,309 -1,334 -1,656 -2,001
% growth 43.3 13.0 1.3 19.6 15.4 Net cash from operations 3,803 1,018 4,141 4,789 5,211
EBITDA margin (%) 25.3 27.2 26.6 28.9 30.4 Capital expenditure (-) -1,015 -76 -1,921 717 -858
Other income 1,143 1,674 1,840 838 1,158 Net cash after capex 2,787 942 2,220 5,506 4,353
Interest costs 4.2 12.9 108.5 96.9 96.9 Other investment activities 680 1,535 1,390 838 1,158
Gross profit 12,405 13,336 13,593 15,148 16,662
Cash from financial activities -980 -1,052 -555 -15,194 -554
% growth (0.4) 7.5 1.9 11.4 10.0
Change in cash balance 2,487 1,425 3,056 -8,849 4,956
Depreciation 663 714 1,032 1,012 1,012
Profit before tax 5,479 6,599 6,425 6,578 7,952 Opening cash balance 15,231 17,719 19,143 22,199 13,350
% growth 6.0 20.4 (2.6) 2.4 20.9 Closing cash balance 17,718 19,144 22,199 13,350 18,306
Tax 1,878 2,309 1,334 1,656 2,001 Source: Company, Nirmal Bang Institutional Equities Research
Effective tax rate (%) 34 35 21 25 25
Net profit 3,601 4,291 5,091 4,922 5,950
% growth 6.9 19.2 18.7 (3.3) 20.9
Adjusted EPS (Rs) 78.7 93.8 111.3
Exhibit
107.6
5:
130.1
Exhibit 7: Key ratios
% growth 6.9 19.2 18.7 (3.3) 20.9 Y/E March FY18 FY19 FY20 FY21E FY22E
Source: Company, Nirmal Bang Institutional Equities Research Profitability & return ratios
bit 2: EBITDA margin (%) 25.3 27.2 26.6 28.9 30.4
it 3: Exhibit 6: Balance sheet EBIT margin (%) 21.9 23.7 21.8 24.7 26.5
Net profit margin (%) 18.2 20.6 23.7 20.8 22.9
Y/E March (Rsmn) FY18 FY19 FY20 FY21E FY22E
RoE (%) 14.1 15.1 15.9 17.1 22.4
Equity 458 458 458 458 458
RoCE (%) 17.0 17.3 14.6 20.2 26.0
Reserves 26,375 29,656 33,497 23,323 28,816
Working capital & Liquidity ratios
Net worth 26,832 30,113 33,955 23,780 29,273
Receivables (days) 25 29 29 28 27
Total loans 25 25 25 25 25
Inventory (days) 153 167 188 191 189
Deferred tax liabilities 146 22 0 0 0
Payables (days) 220 227 199 183 165
Other non-current liabilities 378 347 1,366 1,366 1,366
Working capital days -42 -32 19 36 51
Total liabilities 27,381 30,508 35,345 25,171 30,664
Current ratio (x) 2.6 2.8 3.2 3.0 2.8
Fixed assets including CWIP 825 714 2,153 424 269
Quick ratio (x) 2.2 2.4 2.8 2.5 2.2
Goodwill & intangible Assets 8,351 7,824 7,274 7,274 7,274
Valuation ratios
Long-term loans & advances 433 318 319 319 319
EV/Sales (x) 9.1 8.6 8.2 7.8 6.9
Other non-current assets 3,123 3,377 3,826 3,826 3,826
EV/EBITDA (x) 36.2 31.8 30.8 27.1 22.8
Inventories 2,971 3,867 4,306 4,630 5,093
P/E (x) 55.2 46.3 39.0 40.4 33.4
Debtors 1,548 1,717 1,720 1,850 2,035
P/BV (x) 7.4 6.6 5.9 8.4 6.8
Cash and cash equivalents 507 738 17,638 12,638 12,638
Bank balance 17,211 18,405 4,561 712 5,668 Source: Company, Nirmal Bang Institutional Equities Research
Other current assets 1,793 2,303 1,906 1,906 1,906
Total current assets 24,030 27,030 30,131 21,736 27,340
Creditors 4,956 4,359 4,268 4,260 4,218
Other current liabilities/provisions 4,563 4,533 4,441 4,499 4,499
Total current liabilities 9,519 8,892 8,709 8,759 8,717
Net current assets 14,511 18,138 21,422 12,977 18,624
Asset held for sale 137 137 352 352 352
Total assets 27,380 30,508 35,345 25,171 30,664
Source: Company, Nirmal Bang Institutional Equities Research

3 Pfizer
 In s titu tio n a l E q u itie s

PE Chart
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Source: BSE, Bloomberg, Company, Nirmal Bang Institutional Equities Research

Rating track
Date Rating Market price Target price (Rs)
14 December 2018 Accumulate 2,772 2,737
25 January 2019 Accumulate 2,681 2,963
5 April 2019 Accumulate 3,251 2,963
29 May 2019 Sell 3,281 3,181
13 August 2019 Accumulate 2,920 3,181
23 September 2019 Buy 3,288 3,886
29 October 2019 Accumulate 3,495 3,886
17 February 2020 Sell 4,193 3,886
27 March 2020 Accumulate 3,892 4,287
23 April 2020 Accumulate 4,178 4,287
22 June 2020 Sell 4,082 3,512
28 July 2020 Sell 4,343 3,512

Rating track graph

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4 Pfizer
 In s titu tio n a l E q u itie s

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5 Pfizer
 In s titu tio n a l E q u itie s

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6 Pfizer