A bitter pill

Pfizer India has had a terrible fourth quarter

Pfizer India's earnings per share (EPS) during the quarter ended November 2003 has come down to Rs 2.12 compared with Rs 7.75 in the corresponding quarter of 2002.

In a conference call last October, executive director (finance) Kewal Handa warned that growth had been very high in the last quarter of 2002, and, consequently, the numbers for Q4, 2003 may not look good compared with Q4, 2002.

He advised analysts to compare Pfizer's Q4 numbers with those of the previous quarter. Unfortunately, the company's earnings per share in Q4 have halved compared with its EPS of Rs 4.27 in Q3.

The dismal performance, together with the news of the withdrawal of Gelusil batches from the market pulled down the stock almost 10 per cent on Friday.

Analysts say the key factor that has contributed to the lacklustre performance is that products such as Corex and Becosules have been facing stiff competition and, hence, price realisations have been weak. While the company introduced two new products in 2002, there were no new products last year.

Net profit for the year ended November 2003 dropped 63 per cent to Rs 27.51 crore, while net sales showed a similar trend, declining 12.5 per cent to Rs 474.64 crore.

As a result, operating profits were 46 per cent lower at Rs 33.75 crore and operating margins were 450 basis points lower at 7.11 per cent. Also, profits fell in Q4 compared with Q3 in spite of higher "other income". Purchase of finished goods was much higher in Q4 than in Q3.

The saving grace was the shutting down of the unprofitable plant at Chandigarh. Gains for the company, however, will be capped as a voluntary retirement scheme is anticipated. Meanwhile, no progress is reported on outsourcing from the Thane plant, a possibility hinted at earlier.

Analysts are optimistic that the benefits of integration with Parke Davis (India) will be felt in the form of marketing efficiencies and an efficient supply chain.

Also the proceeds of the sale of its Ankleshwar plant should be reflected in the performance of this quarter. While the market expects product introductions to start post 2005, on the introduction of the new patent regime, it's a bit early to bet on that.

The question is, does a company with negative growth deserve its current PE of around 45?

Commercial vehicles"�The road ahead

The court case relating to the ban on eight-year-old transport vehicles within Mumbai municipal corporation limits is likely to come up for final hearing in the High Court next week.

Earlier, on February 13th, the court had disallowed any relief to transporters - the ban will be enforced unless the vehicles were replaced by CNG/LPG engines.

According to analysts, the ban is already in force despite the fact that the final hearing is still pending. As a result, transporters have to halt old vehicles in the outskirts of Mumbai and transfer goods to a vehicle complying with the order.

This, obviously, has led to an increase in costs. If the ban is upheld in the final hearing, most transporters are expected to shift to new vehicles, since the CNG option is both technically complex and expensive. Besides, CNG kits are not readily available and CNG-filling stations outside Mumbai are few, which will restrict movement outside Mumbai.

According to estimates, more than 40,000 vehicles including tempos, trucks and trailers, will be affected. However, analyst Kalpesh Parekh of ASK-Raymond James, points out that demand may not go up by as much in one go.

This is because large transporters could swap old vehicles plying in Mumbai with new vehicles that ply in other parts of the country. But the ban will lead to some replacement demand.

Further, if the ban is implemented successfully, it could be extended to other metros and then A-cities, which could eventually lead to high replacement demand.

Moreover, high infrastructure spend is expected to stimulate further demand. The Golden Quadrilateral is expected to be completed by end-2004, but work on the North-South and East-West corridors (a bigger project in terms of total length) will continue.

Also, the low interest-rate regime continues, which means that funding truck purchases is easy and cheap. Needless to say, there are a number of reasons for growth in commercial vehicles to continue at a fast pace.

But at the same time, the CV business is cyclical and investors must watch out for any signs that the trend may reverse.

With contributions from Amriteshwar Mathur and Mobis Philipose