Pfizer - Core brands growth to rise, valuation attractive; Anand Rathi upgrades Pfizer to a Buy with a target of Rs 5655

On its better hospitals and vaccine performances, Pfizer’s Q3 FY21 sales grew 10.3% yoy to Rs 5.9 bn. Its gross margin expanded 149 bps yoy to 64.2%, while the EBITDA margin expanded 836 bps yoy to 33.2% on account of lower promotional costs. Lower other income and a higher tax rate reduced adjusted PAT growth to 19.8% (Rs 1.4 bn). Anand Rathi expects sales growth of key brands (Gelusil, Prevenar-13, Becosules, Magnex, Dolonex and Meronem) to accelerate in FY22. The stock trades at attractive valuations of 36x/31.7x FY22e/FY23e earnings. Anand Rathi upgrades Pfizer to a Buy with a target of Rs 5655.

Pfizer established brands to drive 9% growth over FY20-23:

The vitamins and gastroenterology brands were primary drivers of Q3 growth. We expect the strong traction in its key established brands (Becosules, Gelusil, Mucaine and Wysolone) to continue. Besides, the newly-launched brand Zavicefta has picked up well and ranks among its top-25 brands (as per AIOCD).

Adult indication for Prevenar-13 may jolt competition:

Pfizer plans to take competition head-on by diversifying to the adult pneumococcal vaccine range. It already generates Rs.500m sales for this indication and may grow in double digits ahead. Besides, competition from the Serum Institute is currently restricted to the public market in a few states.                                                                          

Brand divesture may have a 3% impact on growth: 

Earlier, as part of the Mylan Upjohn merger, Pfizer India agreed to divest six brands (Lyrica, Amlogard, Daxid, Dilantin, Viagra and Fumycin). These have annual sales of Rs.800m and bring ~3% of sales to the company.

Pfizer Valuation:

At the CMP, the stock trades at 37.5x/36x/31.7x FY21e/FY22e/FY23e earnings. We upgrade the stock to a Buy with a higher target of Rs 5665 (earlier Rs 5460), based on 40x FY23e earnings. 

Pfizer Risks: 

Mandatory price cuts in brands under the NLEM