Pfizer India: Right prescription

Higher profitability of pharma division drives Pfizer's growth

Pfizer India has reported strong numbers for the February 2006 quarter. Operating profit (including service income) has grown 53.1 per cent y-o-y to Rs 43.1 crore in the last quarter and operating profit margins too have expanded 772 basis points to 28.07 per cent.

Although a sequential comparison is strictly not objective in the pharmaceutical industry, nevertheless, the company has grown its operating margins by 1150 basis points in the February 2006 quarter.

The improved performance in the last quarter is owing to higher profitability of the key pharmaceuticals division, coupled with a tight check on material costs.

The results were declared toward the end of Tuesday's trading day, but the stock ended 2.15 per cent higher at Rs 1027.35.

In the pharmaceuticals division, the company has seen double-digit sales growth for products such as Corex and Listerine. Some of the momentum in the sales growth has come about as Pfizer has launched new products such as Viagra from its parent's portfolio in the past few months. The margins on these products are higher than existing products.

Segment profit of the pharmaceutical division rose 39.22 per cent y-o-y to Rs 41.35 crore in the last quarter. Also, adjusted raw material costs fell by 36.6 per cent y-o-y to Rs 19.18 crore in the February 2006 quarter and even as a percentage of net sales, raw material costs declined by a staggering 937 basis points y-o-y to 12.5 per cent.

Analysts say that the company has been able to leverage the cost efficiencies owing to a cost-cutting programme. Analysts are also upbeat about the company bringing more products from Pfizer, US, in the medium term.

The stock trades at about 28.6 times forward earnings (year ending November 2006), which is in line with other MNC pharmaceutical stocks.

HLL: volume push

Cashing in on the revival in demand for fast moving consumer good products, Hindustan Lever (HLL) has been raising prices of its products intermittently over the past few months.

The latest hike has been for some of its soaps and detergents. Along with retail fast moving consumer good sales, HLL's sales too have reportedly hit a five-year high in February.

So the price hikes, ranging between 2 per cent and 12 per cent are well-timed and should not impact volumes. While the four kg Surf Excel pack may not be the most popular of SKUs, the smaller packs at lower price points certainly are.

Besides, Lifebuoy is an important brand, and the price hike is an indication of the company's confidence that it will be able to withstand competition.

HLL has also managed to maintain its detergents market share in the region of 38 per cent. Prices of inputs have not risen materially in the last couple of months, though freight rates has gone up.

As a result, operating profit margins should improve by about 150-200 basis points in the March quarter, especially since the margin in Q1 CY05 was lower at around 11 per cent. The market seems to have read into these developments well in advance.

In the Sensex rally from 10,000 points on February 7 to the current 11,000 point levels, HLL has turned out to be the top-performing Sensex stock gaining 35.5 per cent.

At the current price of Rs 268, the stock trades at nearly 30 times estimated CY06 earnings, which may be justified if the demand growth, especially in rural markets, continues to impress.

With contributions from Shobhana Subramanian and Amriteshwar Mathur