Pfizer –Buy- Emkay

Pfizer Q4CY09 results were disappointing with net profit down by 6% to Rs288 million. This was significantly below our expectations of Rs366 million owing to lower than estimated operating margins.

Though revenue was in-line (up by 10%) driven by 22% growth in the animal healthcare segment & 9% increase in Pharma business, operating margins was mainly impacted (up 50bps y-o-y; down 930bps q-o-q) because of higher raw material costs and price reduction of Becosules. Poor operating performance and lower other income (declined by 27% to Rs146mn) resulted in 6% decline to APAT.

For CY09, company reported a) revenue of Rs7.7 billion (up by 13%), EBIDTA margins of 19.9% (contraction of 175bps) and c) EPS of Rs48.5 vs. estimates of Rs51. Going forward, we expect company to grow in-line with the industry growth on the back of a) new launches both from parent’s pipeline as well as branded generic portfolio, b) focus on key brands and c) market expansion in the rural areas.

Tweaking earning estimates marginally by 2% and 1% to Rs56.7 and Rs65.6 owing to lower interest income. We are of the view that Pfizer-Wyeth merger in India will lead to the re-rating of the stock. Roll over price target to March 2011 and upgrade our rating from hold to BUY

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