Add Pfizer, target price Rs 3,400: Centrum Broking

Centrum Broking has given an ‘add’ rating on Pfizer with a target price of Rs 3,400 as it expects the company to report growth revival and sustain margin.

“We recently interacted with the Pfizer management team. The company is hopeful of achieving in-line or slightly better growth than its MNC peers. The company has recently launched Zavicefta for treating gram-negative bacterial infections. This product has already exceeded management’s internal expectations. The company is expected to launch Zinforo and Neksium injections in the near term. Post the global announcement of the Mylan-Upjohn deal, Pfizer announced seven brands that would become a part of this merger deal from India (5 per cent of sales). More details on the deal are still awaited; meanwhile, management has highlighted its focus on protecting minority shareholder interest. We believe the fiscal year FY20E could be better on both revenue growth and margin front. FY21E could be more watchful given - 1) the exit of Upjohn and CH brands - 2) more clarity on Prevenar-13 risk from the DPCO perspective and additional competitive scenario. However, the margin could benefit with the exit of over-genericised brands,” the brokerage said.

Expect Pfizer’s top-line growth to return in FY20E

Pfizer faced shortages/non-availability of the Minipress brand, largely due to manufacturing issues at the plant level (with manufacturing shifting to another plant). The supplies have improved but not yet fully restored. Also, during the year, women’s health segment faced some supply constraints, which have now normalised. Management is hopeful of achieving in-line or slightly better growth rate than the market. Our data analysis highlights all the key leading brands already reflecting healthy double-digit growth in 1QFY20. Leading brands: Dolonex, Becosules, Prevenar 13, Wysolone and Corex Dx delivered average growth of 12.9 per cent cumulatively. The Minipress brand monthly growth reflects numbers upwards of 60 per cent, indicating resumption of supplies.

Expect margins to sustain
Pfizer’s EBITDA margin has shown significant improvement from the lows of 18 per cent in FY17 to 27 per cent in FY19. The key driver for these improvements has been better product mix, cost efficiencies, and improving MR productivity. Management expects to continue with cost efficiencies; we believe that improving MR productivity would further aid the same. However, management eluded to some additional expenses around the new product launch timelines respectively.

Prevenar 13 accounts for ~16 per cent of sales, potential risk of NLEM
The only vaccine brand that continues to hold the highest market share in a two-player private pneumococcal vaccine market. The brand may face some growth struggle, given the risk of pneumococcal vaccines coming under the government’s UIP program. This brand contributes towards nearly 16 per cent of sales and any risk to its price would hurt that year’s P&L. The management plans to increase the penetration to adult patients in India; currently, 6 per cent of the brand’s sales come from treatment of adult patients.

Seven brands to contribute 5 per cent sales in Pfizer Upjohn - Mylan Merger
Pfizer has announced that seven brands would be a part of the Mylan-Upjohn merger (Lyrica, Amlogard, Daxid, Dilantin, Viagra, and Fumycin), contributing 5 per cent of sales. Management has indicated that the profitability of these brands is slightly lower than the company average. The carved-out brands are largely present in the most genericised therapeutic market. We wait to see how this deal would be structured from financial and marketing points of view. The timeline for this transaction could be mid-CY2020.

“We have marginally increased our price estimate and maintained an add rating on the stock,” the brokerage said.