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Soft FY23 on a high base; valuations attractive; maintaining a Buy

Pfizer’s Q3 revenue slid 8% y/y, 3% q/q, to Rs6.2bn. Even as MinipressXL growth was good, Becosules was flat, while Mucaine, Gelusil and Wysolone declined. The gross margins was steady q/q at 65%. Sequentially, staff costs and other expenses were up 11% each, which led to a 360bp contraction in the EBITDA margin to 32.7%. PAT was Rs1.5bn (up 5% y/y). Management had earlier said in the AGM, that FY23 is expected to be soft (on a high base), while we believe FY24/FY25 revenues should pick up. We retain our Buy, at a lower TP of Rs4,800 (earlier Rs5,225), at 32x FY25e EPS.GI, gynaecology, hormone sales underperformed. AIOCD data show a double-digit fall in sales growth for GI brands: Mucaine, Gelusil, hormones (Wysolone). On the high base, growth was flat for its top key VMN brand Becosules; its anti-infective brand Magnex was muted. Zavicefta (which ranks among Pfizer’s top-20 brands, per AIOCD) have had good traction.

Soft FY23; gradual growth ahead. At the AGM, management guided to a soft FY23, on a high base with no launches. Now, it has a portfolio of 150 products in 15 therapies. Even with the slowdown in private vaccines, its pneumococcal vaccine, Prevenar 13, is still a market leader.

New MD on board. S Sridhar (former MD) retired early to pursue his other interests. With 30 years’ experience with Mckinsey and Novartis Stryker (India), Meenakshi Nevatia will join as MD in Apr’23.

Valuation. At the CMP, the stock trades at 28x/26x FY24/FY25e EPS of Rs136/Rs150. We have a Buy rating on it, with a lower target price of Rs4,800 (earlier Rs5,225), valued at 32x FY25 EPS. Risks: Mandatory price cuts in brands under the NLEM.

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