Pfizer: Selloff blues

Uncertainty over consumer healthcare business impacts sales.

Pfizer's key pharmaceutical businesses posted a lacklustre performance in the quarter ended May 31, 2007, owing to supply-related issues of a product, according to senior company executive.

Furthermore, sales in its consumer healthcare business were sluggish on a y-o-y basis in the last quarter over uncertainties as this division is expected to be divested shortly.

Consequently, its operating profit (including service income) declined 3.5 per cent y-o-y to Rs 41.1 crore in the previous quarter and the total operational income reduced 1.3 per cent to Rs 170.55 crore. The pharma major's operating profit margin also came down 60 basis points y-o-y to 24.1 per cent in the March 2007 quarter.

However, the company had executed the sale deed related to its Chandigarh property in the last quarter which boosted its other income.

It realised a profit of Rs 273.69 crore from the on property sale, which enabled its profit before exceptional items and taxation jumping 473.8 per cent y-o-y to Rs 323.3 crore. The stock rose almost 2 per cent to Rs 826 on Thursday.

Though not strictly comparable, in the February 2007 quarter the company's operating profit margin had fallen 147 basis points y-o-y to 26.6 per cent owing to reduced sales in its consumer healthcare business.

In the May 2007 quarter, the company's segment revenues in its pharma division declined 3.65 per cent y-o-y to Rs 146.78 crore.

The US parent had earlier announced that it had sold its worldwide consumer healthcare business to Johnson & Johnson and Pfizer India was also expected to exit from this business soon.

For the Indian arm, analysts said, this business was contributing 21.8 per cent of the company's total revenues in the year ended November 2006. With lukewarm results, the Pfizer stock has underperformed the market over the past year.

Without considering the transfer of the consumer healthcare business and the Chandigarh property sale, the Pfizer India stock trades at 24 times estimated November 2007 earnings, and is not expensive.

UTV: Action-packed

The film business of UTV Software has been valued at $309 million (Rs 1,250 crore) with the shares of the company's film subsidiary, UTV Motion Pictures, which is listed on the Alternate Investment Market (AIM) of the London Stock Exchange.

The shares have been placed at $2.9 per share and the company has raised $77.33 million for 25 per cent of the equity.

UTV is an integrated player in the entertainment sector and produces and distributes films, makes television content and has forayed into the gaming industry by picking up a controlling stake in India Gaming and Ignition.

Moreover, the company is betting big on the broadcasting space and may launch a dozen channels in various genres, starting from the third quarter of the financial year 2008.

That could result in a dilution in the equity of UTV Broadcasting, as a considerable amount of capital - estimated around Rs 600 crore "" will be needed.

Revenues in the financial year 2008 could double from Rs 174 crore, reported in financial year 2007, with several films and television content in the pipeline and also from the contribution from gaming industry.

The operating margin too could improve from 6.15 per cent achieved last year, driven by a strong growth in the top line. However, the commitments to the movie business are relatively high compared with the size of the company.

Moreover, start-up costs and execution risks for the channel business could also be taken into account given the competition in the space though the company will attempt to share the risk either with financial or strategic investors.

The stock has run up by over 60 per cent since the March quarter. At the current price of Rs 507, the stock trades at about 41 times estimated financial year 2008 earnings and prices in most of the initiatives being taken.

With contributions from Amriteshwar Mathur and Shobhana Subramanian