Financial Daily from THE HINDU group of publications
Monday, Oct 06, 2003
Financial Daily from THE HINDU group of publications Monday, Oct 06, 2003 |
|
|
|
|
|
Investment World
-
Stocks Markets - Recommendation Pfizer: Cut exposures Nath Balakrishnan
Mr Hocine Sidi Said, Managing Director, Pfizer_ Waiting for the benefits to accrue _ Bijoy Ghosh
There is also an impending merger with Pharmacia Healthcare. Pfizer's inherent strengths may, for a few quarters, be neutralised by the weak spots of these entities. As a result, the stock may under-perform other pharma sector stocks. In this backdrop, investors staying invested in Pfizer may miss out on other investment opportunities. It may also leave investors open to some downside risk in the stock. But Pfizer is likely to be one of the more dominant MNC players in the long term and, for this reason, its fortunes need to be tracked for possible investment at a later date at lower price levels. At the current price, Pfizer trades at a multiple of about 27 times its trailing earnings per share(sustainable) for the preceding four quarters. Earlier, Pfizer had deferred the announcement of its quarterly earnings numbers after minority shareholders of Parke Davis had filed a petition challenging the merger and objecting to the share-swap ratio. Subsequent to the Supreme Court dismissing the petition early last month, the company unveiled the long-overdue numbers for three quarters of its current financial year (Pfizer follows a December-November financial year). Financial highlights: The highlights of Pfizer's earnings numbers are:
This was despite the sales of this segment increasing by about 20 per cent to Rs 124.7 crore. This could possibly be attributed to the addition of a few high-volume, low-margin brands from the Parke Davis stable.
Admittedly, Pfizer's fortunes improved in the latest quarter compared to the May quarter. In the May quarter, sluggish demand and a fall in the trade offtake on account of the confusion over the implementation of value-added tax, dented earnings. In the quarter ended May 2003, overall margins dropped to about 12 per cent and the OPM from the pharmaceutical segment slipped to about 11.5 per cent.
Benefits may take time
The fall in the operating margin level in the June-August 2003 quarter indicates that the benefits from the integration of Parke Davis with Pfizer have not accrued fully. Additionally, there needs to be a substantial expansion in margins if the combined entity is to be as profitable as Pfizer was as a standalone entity. To put things in perspective, Pfizer, as a standalone entity, reported overall operating margins of about 26 per cent. Its intention to recast its portfolio, by shedding low-volume products, could improve profitability. Further, should Pfizer decide to merge the operations of Pharmacia with itself, consequent to a similar merger at the global level, issues such as rationalisation of workforce and streamlining of product portfolio might again come to the fore. Given the experience of the numbers, after the merger with Parke Davis, the markets may factor in some uncertainty about the shape of revenues, profitability and earnings levels, if and when the merger with Pharmacia happens.
Outlook
Pfizer continues to be one of the better MNC pharma plays in the country today with a strong sales force to promote its products. The intended benefits of the merger do not appear to have accrued as anticipated. However, investors should look at re-entering the stock if it seeks lower levels. For the moment, reducing exposures appears to be a prudent move.
Article E-Mail :: Comment :: Syndication
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | Home |
Copyright © 2003, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|