Pfizer Rating: Buy — Performance in December quarter was weak

Revenue growth of 4.7% was sharply lower than the AIOCD reported growth of 18.9%.

Pfizer’s (PFL’s) Q3FY20 performance was weak during the quarter. Revenue grew at a tepid 4.7% y-o-y to Rs 5.4 bn. Ebitda margin declined 520bps y-o-y and 420bps q-o-q to 24.8% (lowest in several quarters). Adjusted PAT grew 5.4% y-o-y to Rs 1.4 bn. As per AIOCD data, growth for the company stood at 18.9%. The lower primary growth would suggest some level of channel destocking which we believe would normalise in the coming quarters. We remain positive on the company’s growth visibility with exposure only in domestic formulations, strong balance sheet with deep cash reserves, new power brands and strong brand equity built over the years. Maintain Buy.

Muted operational performance: Revenue growth of 4.7% was sharply lower than the AIOCD reported growth of 18.9%. We believe it could be due to some level of channel destocking. Also the company has divested rights and interests in two brands and recognised a net gain of Rs 250 mn in other income. This divestment could also have caused a lower revenue recognition during the quarter. A sharp rise of 15.1% y-o-y and 6.3% q-o-q in the S,G&A expenses coupled with lower gross margin negatively affected the Ebitda (-13.5% y-o-y, -18.7% q-o-q).

Outlook: We expect revenue to grow 9.2% over FY19-FY22e. Operating leverage would drive margin improvement of 280bps and result in 18.2% earnings CAGR over FY19-FY22e. This would help generate healthy free cashflows of ~Rs 22 bn over FY20e-FY22e. The RoIC profile is very strong at 30.5% in FY19 and we expect it to increase to 50.4% by FY22e.

Valuations: We revise our rev/earnings estimates for FY20e-FY22e by 1-2%/3-5% reflecting the weak showing. Maintain Buy with a revised TP of Rs 4,961 based on 32xFY22e EPS (earlier: Rs 5,239).