Pfizer India: Poison pill

Rise in purchase of finished goods spoils Pfizer India numbers

Pfizer India has reported a 137 basis points y-o-y decline in its operating profit margin to 16.57 per cent for the November 2005 quarter and that's despite operating profit (including service income) expanding 5.14 per cent to Rs 29.05 crore.

One of the factors that has contributed to the fall in operating profit margin has been the purchase of finished goods jumping 85.46 per cent y-o-y to Rs 33.81 crore in the November 2005 quarter.

Analysts say that the cost increase was largely owing to higher excise duty paid on formulations bought from third parties. The bullish sentiment in the run-up to the Budget helped the Pfizer stock gain 4.5 per cent to Rs 1,037 on Monday.

However, over the past three months, this stock has lagged the broader markets; it has gained 12.8 per cent compared with 14.3 per cent rise in the Sensex.

Earlier, rising costs for raw materials had resulted in GlaxoSmithkline Pharma's operating profit margin remaining more or less flat on a y-o-y basis at 23.7 per cent in the December 2005 quarter.

Meanwhile, Pfizer, such as other players, benefited from revival in domestic sales. Segment revenue of the key pharmaceuticals business expanded 18.75 per cent y-o-y to Rs 152.92 crore in the November quarter, and this improvement was owing to improved sales of Gelusil, Becosules and Corex, say analysts.

Like earlier quarters, operational efficiencies helped improve segment profit of the pharmaceuticals business in the November quarter.

Going forward, it appears that Pfizer India would need to accelerate product launches from its parent's portfolio, if the forward P/E of 34.5 times is to be justified.

Gujarat Gas: Losing steam

Gujarat Gas has posted a dismal performance in the December 2005 quarter, with the consolidated operating profit declining 33.82 per cent q-o-q to Rs 27.22 crore.

As a result, operating profit margin declined 1186 basis points to 13.59 per cent last quarter. In comparison, operating profit margin in the first three quarters of 2005 was at 25.29 per cent.

The main reason for the weak performance was that total expenditure went up 43.64 per cent q-o-q compared with 23.92 per cent rise in net profit.

Raw material consumption, which accounts for the bulk of the total costs, went up by 40.55 per cent while other expenditure rose almost 90 per cent. An adverse gas purchase mix also resulted in the lower profitability.

The company's transmission business declined by Rs 4 crore in the December quarter.

This business will increasingly see a drop in revenues due to competition from Gujarat State Petronet. To compensate for this loss of revenue, Gujarat Gas is expanding into the CNG business, where it has set up 12 CNG stations in Gujarat.

The company is also foraying into the cogen business and will acquire assets and liabilities of BG India Energy Services. The stock trades at about 18 times trailing 12-month earnings.