From THE HINDU group of publications
Sunday, July 08, 2001


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Pfizer: Hold

Recommendation: Hold

Sanjiv Shankaran

A MARKED increase in sales productivity helped Pfizer post a healthy growth in net profit in 2000-01 first half (the company's financial year ends in November).

Driving the growth in net profit was the 16 per cent jump in net sales. The net sales was Rs 168.32 crore, up Rs 22.64 crore over the corresponding previous period.

Three products made significant contributions to Pfizer's sales -- Hepashield (Hepatitis B vaccine), Magnex (antibiotic) and Protinex. Of these, the first two are relatively new to the company's portfolio, while the third is a long standing product.

The 16 per cent growth in net sales -- is significantly higher than the overall market growth rate of around 10 per cent -- underlines the company's strategy of constantly trying to improve the productivity of the field force to extract more mileage out of the limited product basket. Pfizer derives a significant service income by working in tandem with its parent, Pfizer Inc, to conduct clinical trials for drugs. A 21 per cent increase in the `other income' component helped Pfizer end with an aggregate income of Rs 196.45 crore, up by Rs 27.45 crore in the first half of 2000-01 (16.24 per cent) compared to corresponding previous period.

Cost-control is an important objective for Pfizer. The move has paid rich dividends as the company has managed to improve profitability without spectacular growth in sales. The case in 2000-01 first half was much the same: Overall, the cost structure did not increase significantly.

Pfizer's operating profit for the first half of 2000-01 was Rs 39.18 crore, up by Rs 9.52 crore (32 per cent) in relation to the corresponding previous period. The profitability of operations rose significantly; up to 19.94 per cent in the first half of 2000-01 compared to 17.55 per cent in the corresponding previous period.

The interest expense was small as also depreciation. With the proportion of profit earmarked towards tax provision remaining around 40 per cent, Pfizer ended the year with a net profit of Rs 21.40 crore, up 35 per cent over the corresponding previous period.

The net profit, as a proportion of aggregate income, was 10.89 per cent, significantly higher than 9.40 per cent recorded in the corresponding previous period.

Pfizer's earnings per share (EPS) was Rs 9.13 for the first half, up by about 35 per cent compared to the corresponding previous period. The current share price is Rs 455, leading to a price-earnings multiple (PEM) of about 25, when the half-yearly EPS is annualised.

Outlook: The essence of Pfizer's strategy can be summed up thus: Extract the maximum out of a limited product basket that, however, is filled with firmly entrenched brands.

To do that, Pfizer has sharply focussed on improving the productivity of its sales force and ironing out superfluous cost. Product launches are few and, consequently, Pfizer has put in a lot of effort and resources behind the existing product. The rise in operating efficiency of the firm is a case where sharp focus has borne fruit.

The remaining half of the year is also likely to see a marked growth in net profit. But it may not be time to buy the shares of Pfizer. The share price has been weak of late, which can be traced back to both the overall lack of interest in the equity market as well as a correction of the fanciful valuations in the pharmaceutical sector. Till all the external factors diminish, it may not be lucrative to take an exposure in the Pfizer stock.

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