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Steady annual performance despite disturbances…

FY21 revenues grew 4.0% YoY to | 2239 crore with hospital and vaccines business impacted amid the pandemic. EBITDA margins expanded 520 bps to 31.8% YoY due to a better overall operational performance. Decline in other expenses is likely on account of lower promotional and marketing activities related expenses. EBITDA grew 24.4% YoY to | 712 crore. However, PAT de-grew 2.3% YoY to | 498 crore. Delta vis-à-vis EBITDA was due to lower other income and tax reversals in the base year.

Persistent margin improvement despite slow growth

Besides legacy NLEM/GST related adjustments, Pfizer has been continuously restructuring its portfolio in the last few years to improve the productivity of its core brands and also in accordance with development at the parent level. Despite stagnant turnover growth (FY16-21 CAGR of ~2%), the company has delivered margin improvement on a fairly consistent basis (FY21 EBITDA margin of 31.8% vis-à-vis FY16 EBITDA margins of 21.5%; EBITDA, PAT CAGR of 10%, 11%, respectively, in FY16-21).

Strong balance sheet, return ratios

Pfizer India is a net debt-free company with healthy core RoE of ~34% in FY21. Strong brand recall, consistent new product launches and acquisition of new brands, volume growth in top brands and intermittent price hikes provide comfort on the financials front. The company has proposed a | 35 (special: | 5 + final: | 30) dividend for FY21. Barring FY20, Pfizer has continuously maintained a dividend payout of 25-35% during FY16-21.

Valuation & Outlook

Despite divestiture of certain brands in earlier quarters and Covid-19 related operational challenges, the company continues to deliver a decent set of numbers. Pfizer is following a measured approach with de-focusing and hiving off of tail brands and focusing on core strengths areas such as vaccines, pain management, vitamins, GI and CVS. Similarly, the company is continuously trying to enhance the share of the parent’s global products portfolio, which has grown from ~36% in FY17 to ~50% as of FY20. The vaccines segment, led by Prevnar 13, especially, remains at the core of future growth and new launches. We continue to believe in Pfizer’s strong growth track record in power brands and capability in new launches on a fairly consistent basis (recent launches from parent’s staple- Zavicefta, Zinforo, Meronem (all anti-infective), Eliquis (CVS), Xeljanz (pain management) among others). We maintain BUY rating and arrive at a target price of | 6060 (earlier | 5890) based on 40x FY23E EPS of | 151.5.

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