Pfizer: Right dose

Sales surge helps Pfizer offset higher costs in last quarter

Pfizer has seen its operating profit (including service income) improve by 34.7 per cent y-o-y to Rs 42.64 crore for the quarter ended May 2006, on a 21.1 per cent growth in operating income to Rs 172.88 crore.

Operating profit margin also grew by 236 basis points y-o-y to 24.66 per cent in the May 2006 quarter. The improved performance in the last quarter has been aided by a better performance in its key pharmaceuticals division. The stock gained 1.1 per cent to Rs 769 on Wednesday.

In its pharmaceuticals division, sales rose 26.74 per cent y-o-y to Rs 152.36 crore in the last quarter. The company, which generates an overwhelming proportion of its sales from India, has been one of the key beneficiaries of a revival in domestic sales in the past eight months.

Growth momentum for the division has been largely provided by Gelusil (medication for sour stomach and acid indigestion), thanks to its sales showing signs of stabilising in the domestic market, say analysts.

A small stimulus to sales was also provided by recent products launched by the company such as Viagra and Lyrica (medication for management of neuropathic pain).

A higher sales turnover helped the company offset higher costs in the last quarter. For instance, the purchase of finished goods rose 29.9 per cent y-o-y to Rs 26.34 crore in the last quarter.

Analysts highlight that the rise was owing to an enhanced proportion of finished products purchased from its parents global operations.

Pfizer has completed the sale of its Hyderabad property in the May 2006 quarter for Rs 12.21 crore and it helped the quarterly net profit grow 132 per cent y-o-y to Rs 35.89 crore.

The American parent had recently announced that it had sold its worldwide consumer healthcare business to Johnson & Johnson.

For the Indian arm, this business""which has products such as Benadryl, Listerine and Gelusil""was estimated to provide Rs 140 crore or about 23 per cent of the company's total revenues for the year ended November 2005, highlight analysts.

It is expected that the Indian arm will also exit from the business. The stock trades at about 18.6 times estimated November, 2006 earnings (excluding the impact of hiving off the consumer healthcare business).

Jain Irrigation: Rich harvest

Jain Irrigation is one company to benefit from the government initiatives to promote agriculture and micro-irrigation in particular.

The company has posted an impressive 40 per cent top line growth in consolidated revenues for FY06.

But higher manufacturing and other expenditure have resulted in the operating profit rising at a lower rate of 32.6 per cent to Rs 109.8 crore. Operating profit margin declined by 76 basis points y-o-y to 13.04 per cent.

The company saw its selling and distribution expense increase by almost 50 per cent in FY06, a healthy sign of the company increasing its presence.

Another positive was that the company has managed to reduce the cost of raw materials as a percentage of sales from 62.4 per cent in FY05 to 60.5 per cent last year in an environment of rising input (mainly resins) prices.

High-tech agri inputs segment, which includes agri irrigation products like drip/sprinkler systems and PVC/PE piping products, grew at 41.2 per cent and had an 18.89 per cent PBIT (profit before interest and tax) margin.

The industrial products segment, which includes PVC and PC products, dehydrated products and fruit processing businesses, grew 39.4 per cent, though its PBIT margin is lower at 16.7 per cent.

Jain Irrigation has also taken the inorganic path, and acquired three companies in India and three abroad last year.

As more state governments implement micro-irrigation projects, no doubt Jain Irrigation will benefit. But the growth opportunities seem factored in as the stock trades at 21 times trailing P/E.

NIIT Technologies: Improved margins

Software services firm NIIT Technologies saw its consolidated FY06 operating profit margin improve by 93 basis points to 18.55 per cent.

Revenue growth at 11.8 per cent and operating profit growth of 17.74 per cent are slightly muted. But the company's performance for the quarter is quite strong. Despite a sequential growth of 5.6 per cent in consolidated Q4 FY06, operating profit went up 8.9 per cent.

Operating profit margin improved by 60 basis points q-o-q to 20 per cent. Though operating profit margin remained flat in the software solutions business in Q4, the BPO business stopped being loss-making.

NIIT Tech has identified BFSI, transportation and retailing and manufacturing as its key areas which posted a 21 per cent y-o-y growth, and increased the proportion of these three businesses to 75 per cent in FY06 from 69 per cent in the previous year.

In order to strengthen its position in the insurance segment, the company acquired 51 per cent stake in Room Solutions, UK, last month and would acquire the remaining 49 per cent over the next 18 months. Insurance service provider Room has its own platform to process policy administration, and had revenues of $25 million.

NIIT Tech bought the company at one times sales. At its current price of about Rs 170, NIIT Tech trades at a trailing P/E of less than 10, making it one of the cheapest mid-tier IT stocks.