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Exceptional performance

Pfizer Limited’s (PFL) reported strong performance beating our estimates across parameters during the quarter. Revenue grew 45.5% YoY to Rs7.5bn (I-Sec: Rs7.2bn) benefiting from strong growth in its top brands. EBITDA margin improved 1460bps QoQ (+190bps YoY) to 38.1% (I-Sec: 27.0%) with sharp decline in S,G&A costs (-20.2% QoQ).

Adjusted PAT grew 60.6% YoY to Rs2.0bn (I-Sec: Rs1.8bn). While we remain positive on the company’s growth visibility with exposure only in domestic formulations and strong balance sheet with deep cash reserves, current valuations capture the near term growth with potential correction in margins as costs normalise, hence, we maintain HOLD.

* Strong growth and controlled costs: Revenue growth during the quarter was healthy at 45.5% YoY even on a low base of last year led by growth across key brands especially Becosules. Gross margins declined 210bps YoY (flat QoQ) but S,G&A expenses fell sharply by 20.2% QoQ boosting EBITDA margins by 1460bps QoQ (+190bps YoY). We believe that S,G&A expenses would rise from this level as company invests more towards marketing and promotions as well as travel expenses in the coming quarters with easing of COVID-19 cases and rising vaccination. Hence EBITDA margin should correct from current ~38% to ~33-34% and remain largely stable over the next two years.

* Key products performance: As per AIOCD data PFL has grown 39.0%. This was led by high double digit growth in Becosules, Magnex, Mucaine, Corex DX, Meronem and Wysolone of 36.1%, 73.4%, 34.2%, 39.5%, 71.3% and 54.2% respectively. Gelusil MPS and Minipress XL also reported a growth of 12.4% and 14.1% respectively for the quarter. Eliqius continues its strong performance with a growth of 249% YoY for the quarter. Prevenar 13 was the only brand to decline 40.0% YoY due to low demand owing to the pandemic. All the brands also reported high double digit growth sequentially with recovery in the acute segments.

* Outlook: We believe that business should will continue to grow in the coming months supported by its VMN, gastro and cardiac portfolio with some recovery in the vaccine portfolio. High revenue growth should generate some operating leverage but we expect costs to increase from the current levels for the year restricting margin to ~33- 34% and minimal capex requirement would help generate FCFF of ~Rs16bn over two years.

* Valuations and risks: We raise our revenue and EPS estimates by 8-11% and 11- 14% respectively for FY22E-FY23E to factor in higher growth and lower expenses. Maintain HOLD on the stock with a revised target price of Rs5,752/share based on 35xFY23 earnings (earlier: Rs5,035/share). Key downside risks are: addition of key drugs in NLEM, product concentration, government intervention, and presence of unlisted promoter company. Key upside risks are: higher than expected growth and launch of COVID-19 vaccine that is not part of our estimates.

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