Hold Pfizer; target of Rs 2010: Centrum

Centrum's research report on Pfizer

We maintain Hold rating for Pfizer with a TP of Rs 2,010 (earlier Rs 2,090) based on 23x March’18E EPS of Rs 87.4. Pfizer’s Q2FY17 revenues were in line but EBIDTA margin and net profit were below our expectations. The rise in material cost due to pricing policy has resulted in 540bps decline in margin to 16.4%. We expect the company to deliver superior performance due to strong growth in its flagship brands. Pfizer has launched new product Xeljanz for rheumatoid arthritis in India. Key upward risks to our assumptions are faster than the domestic market growth and key downward risk is ban on Fixed Dose Combination (FDC) of its flagship brand Corex. We recommend a switch to Sanofi India or Aurobindo Pharma.

Pfizer’s EBIDTA margin for the quarter declined by 540bps YoY to 16.4% due to increase in material cost and personnel expenses. Its material cost grew by 510bps YoY to 42.2% from 37.1% due to the impact of price control. Personnel expenses grew by 150bps to 14.5% from 13.0% due to annual rise in salaries and sales incentives. Other expenses declined by 110bps to 27.0% from 28.1% due to the closure of Thane facility. The change in product mix and closure of Thane facility would improve Pfizer’s margins.