PFIZER LIMITED Result Update (PARENT BASIS): Q1 FY15

PFIZER LIMITED Result Update (PARENT BASIS): Q1 FY15 ISIN: INE182A01018 SEPTEMBER 29 th,2014 Recommendation BUY CMP 1634.05 Target Price 1797.00 STOCK DETAILS Sector BSE Code 500680 Face Value 10.00 Pharmaceuticals 52wk. High / Low (Rs.) 1824.00/1020.00 Volume (2wk. Avg ) 12000 Market Cap ( Rs in mn ) 48760.05 ANNUAL ESTIMATED RESULTS (A*: ACTUAL / E*: ESTIMATED) Years FY14A FY15E FY16E Net Sales 11118.00 12279.83 13692.01 EBITDA 3479.10 3856.36 4231.38 Net Profit 2208.50 2498.68 2758.23 EPS 74.01 83.74 92.43 P/E 22.08 19.51 17.68 SHAREHOLDING PATTERN (%) 1 YEAR COMPARATIVE GRAPH PFIZER INDIA LIMITED BSE SENSEX Highlights Pfizer Ltd was incorporated in 1913 and engaged in manufacturing, marketing, trading and export of pharmaceutical products. Manufacturing facility of the company is at Thane and various independent third party manufacturers are based across the country. During current quarter, Net Sales of Pfizer India stood at Rs.2661.60 mn against the same value of Rs. 2661.60 mn in the correspoding quarter of previous year. Net Profit for the company was at Rs.461.50 mn in Q1 FY15 against Rs. 476.30 mn in same period previous year. Pfizer Ltd reported EBDITA of Rs. 723.30 mn in Q1 FY15 when compared to Rs. 752.00 mn in Q1 FY14. Other operating income for the quarter ended June 30, 2014 was Rs. 5.30 mn and Rs. 106.70 mn against Rs. 39.40 million for the quarter ended June 30, 2013 towards such CSA commission and support services. Eaning Per Share of the company stands at Rs. 15.47 in the current June quarter against Rs. 15.96 for same period previous year. Pfizer stands debt free with no long term and short term borrowings as on 31 st March 2014. The finance costs of the company is just Rs. 1.20 mn in Q1 FY15. The CAGR of Net Sales and Operating Profit are expected to grow at 9% and 13% respectively over next 2-3 years. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) PFIZER INDIA LTD 1634.05 48760.05 74.01 22.08 7.41 3600.00 SANOFI INDIA LTD 3407.35 78473.40 121.06 28.15 5.83 450.00 ABBOTT INDIA LTD 3118.75 66271.30 88.46 35.26 8.41 230.00 NOVARTIS INDIA LTD 670.20 21420.10 30.97 21.64 2.23 200.00

ANALYSIS & RECOMMENDATION BUY Pfizer Ltd, Net Sales for the first quarter of FY2014-15 stood at Rs.2661.60 mn against the same value of Rs. 2661.60 mn in the correspoding quarter of previous year. Net Profit declined by 3.11% and stood at Rs. 461.50 mn compared to Rs. 476.30 mn in the same period previous year. The company has no long term and short borrowings and the finance costs are also insignificant at Rs. 1.20 mn in Q1 FY15. Though Indian Pharmaceutical industry is highly competitive and fragmented, Pfizer with its merger with Wyeth merger will become an important player with 2.9% market share of the domestic market. Operational synergies will also yield benefits, consolidating Pfizer s position in the Indian Pharma market in the coming quarters. Thus we recommend BUY for the scrip with a target price of Rs.1797.00 for the medium and long term. COMPANY PROFILE Pfizer Ltd, a public limited company was incorporated in 1913 under the Indian Companies Act. The registered office of the company is in Mumbai, Maharashtra and is listed on BSE Ltd and the National Stock Exchange of India Limited. The Company is engaged in manufacturing, marketing, trading and export of pharmaceutical products. The manufacturing facility of the company is at Thane and various independent third party manufacturers are based across the country. Pfizer sells its products through independent distributors in India. The parent company, Pfizer Inc., was founded by Charles Pfizer and Charles Erhart in 1849. Pfizer Inc, a research oriented pharmaceutical company, is in Fortune 500 list. Pfizer has produced innovative breakthroughs in wide range of research areas such as depression, erectile dysfunction, high cholesterol, HIV infection, hypertension, bacterial infections and systemic fungal infections. In 2000, Pfizer increased its global presence through acquisition of Warner-Lambert and Pharmacia. Through strategic partnerships and acquisitions of diversified businesses, such as Wyeth in 2009, Pfizer solidified its place as one of the most diversified companies in the global health care industry. Pfizer India divested its animal health business in 2012 and subsequently sold it to wholly owned subsidiary of parent company, Pfizer Inc. Pfizer is one of the major players in Indian pharmaceutical industry. The company has vast product range such as anti infectives, anti fungal, anti TB, cardiovascular, dermatology, gastrointestinal etc. The popular brands of Pfizer in India are COREX syrup, BECOSULES Capsules and Gelusil. The product base of the company will diversify further post merger with Wyeth in India strengthening its brand image and market presence.

FINANCIAL HIGHLIGHTS (PARENT BASIS) Q1 FY15 The net sales of the company stood at Rs. 2661.60 million in Q1 FY15 compared to same valu of Rs. 2661.60 million in the corresponding quarter of previous year. Net Profit declined by 3.11% from Rs. 476.30 mn to Rs. 461.50 mn in Q1 FY15. In the same period EBDITA stood at Rs. 723.30mn against Rs. 752.00 mn in the corresponding quarter of the previous year. The Profit Before Tax at Rs. 699.50 against Rs. 731.10 mn in the corresponding quarter of the previous year. Rs. In Mn June-14 June-13 Change % Net Sales 2661.60 2661.60 0.00 Net Profit 461.50 476.30 (3.11) EPS 15.47 15.96 (3.11) EBITDA 723.30 752.00 (3.82) PBT 699.50 731.10 (4.32) Break up of Expenditure Break up of Exp (In Mn) Q1 FY15 Q1 FY14 CHNG % Cost of Material 624.30 557.20 12 Stock in Trade 214.00 274.20 (22) Emply Benefit Exp 499.80 599.20 (17) Dep & Amortz Exp 22.60 20.10 12 Other Exp 721.00 746.90 (3) Other Important Updates Other operating income for the quarter ended June 30, 2014 was Rs. 5.30 mn and Rs. 106.70 mn against Rs. 39.40 million for the quarter ended June 30, 2013 towards such CSA commission and support services. Pfizer Limited has approved a share swap ratio of 7 equity shares of the face valu of Rs. 10.00 each fully paid up of Pfizer limited for every 10 equity shares of the face value of Rs. 10.00 each fully paid up of Pfizer Ltd for every 10 equity sahares of the face value of Rs. 10.00 each fully paid up of wyeth Ltd. The Scheme of Amalgamation has been unanimously approved by the equity shareholders (100% in numbers and values) of thehose present and voting at the court convened meeting hekld on April 16, 2014.

FINANCIAL STATEMENTS & ESTIMATIONS (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as on 31 st March 2013 to 2016E Pfizer India Ltd 2013A 2014A 2015E 2016E EQUITY AND LIABILITIES: Shareholders Funds: Share Capital 298.40 298.40 298.40 298.40 Reserves and Surplus 16645.80 6285.70 7479.98 8975.98 Net worth (a) 16944.20 6584.10 7778.38 9274.38 Non-Current Liabilities: Other Long Term Liabilities 1.00 1.00 1.05 1.09 Long Term Provisions 140.70 155.50 170.27 185.60 Total Non Current liabilities (b) 141.70 156.50 171.32 186.69 Current Liabilities: Trade Payables 1505.90 1599.30 1679.27 1746.44 Other Current Liabilities 395.60 546.80 645.22 729.10 Short Term Provisions 1607.60 356.70 185.48 126.13 Total Current Liabilities (c) 3509.10 2502.80 2509.97 2601.67 Total Liabilities (a+b+c) 20595.00 9243.40 10459.68 12062.74 ASSETS: Non-Current Assets: Fixed Assets 259.40 239.00 246.17 252.08 Deferred tax assets 398.80 341.90 362.41 381.98 Non Current Investments 459.90 444.90 467.15 487.70 Long Term Loans and Advances 1433.00 1365.40 1406.36 1440.11 Total Non Current Assets (d) 2551.10 2391.20 2482.09 2561.88 Current Assets: Current Investments 0.00 0.00 0.00 0.00 Inventories 1651.50 1515.00 1666.50 2091.91 Trade Receivables 1420.90 1733.90 2080.68 2476.01 Cash and Bank Balances 14329.40 3077.90 3672.64 4333.72 Short Term Loans and Advances 432.30 471.70 509.44 545.10 Other Current Assets 209.80 53.70 48.33 54.13 Total Current Assets (e) 18043.90 6852.20 7977.59 9500.86 Total Assets (d+ e) 20595.00 9243.40 10459.68 12062.74

Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 10500.70 11118.00 12279.83 13692.01 Other Income 1052.40 1093.80 896.92 1000.06 Total Income 11553.10 12211.80 13176.75 14692.07 Expenditure -8629.80-8732.70-9320.39-10460.70 Operating Profit 2923.30 3479.10 3856.36 4231.38 Interest -2.40-3.60-5.69-8.30 Gross profit 2920.90 3475.50 3850.67 4223.07 Depreciation -80.20-79.70-93.25-106.30 Profit Before Tax 6937.70 3395.80 3757.42 4116.77 Tax -1905.70-1187.30-1258.74-1358.53 Profit After Tax 5032.00 2208.50 2498.68 2758.23 Equity capital 298.40 298.40 298.40 298.40 Reserves 16645.80 6285.70 7479.98 8975.98 Face value 10.00 10.00 10.00 10.00 EPS 168.63 74.01 83.74 92.43 Quarterly Profit & Loss Statement for the period of 31 st Dec, 2013 to 30 th Sep, 2014E Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14E Description 3m 3m 3m 3m Net sales 2721.90 2744.80 2661.60 3034.22 Other income 281.30 163.10 100.80 133.06 Total Income 3003.20 2907.90 2762.40 3167.28 Expenditure -2257.90-2015.70-2039.10-2126.99 Operating profit 745.30 892.20 723.30 1040.29 Interest -0.80-1.90-1.20-1.38 Gross profit 744.50 890.30 722.10 1038.91 Depreciation -17.40-20.30-22.60-24.41 Profit Before Tax 727.10 870.00 699.50 1014.50 Tax -251.10-309.70-238.00-352.03 Profit After Tax 476.00 560.30 461.50 662.47 Equity capital 298.40 298.40 298.40 298.40 Face value 10.00 10.00 10.00 10.00 EPS 15.95 18.78 15.47 22.20

Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 168.63 74.01 83.74 92.43 EBITDA Margin (%) 27.84 31.29 31.40 30.90 PBT Margin (%) 66.07 30.54 30.60 30.07 PAT Margin (%) 47.92 19.86 20.35 20.14 P/E Ratio (x) 9.69 22.08 19.51 17.68 ROE (%) 29.70 33.54 32.12 29.74 ROCE (%) 17.73 54.05 50.78 46.77 EV/EBITDA (x) 11.78 13.13 11.69 10.50 Book Value (Rs.) 567.84 220.65 260.67 310.80 P/BV 2.88 7.41 6.27 5.26 Charts

INDUSTRY OVERVIEW Indian Pharmaceutical Industry ranks third globally in terms of volume and 13 th in terms of value. The total market size of industry is Rs. 1,233 bn of which domestic market constitutes of 48%. The Indian Pharmaceutical Industry continues to be the fastest growing sectors in India. But the industry is facing tough time due to slow growth, high inflation and unfavorable government policies such as the DPCO policy. DPCO, the national pharma pricing authority has reduced the ceiling prices of various medicines. The new policy, passed by the cabinet, intends to arrive at a price cap for each essential drug by a market based pricing formula, which is the simple average of all brands that command a market-share of 1% or more in a therapeutic category. The Drug regulator, while working out price caps, clubbed all brands of an essential drug marketed by a company to determine if a drug firm commands over 1% market-share in a therapeutic category. This new pricing policy has slashed prices of various essential drugs which will directly affect the profitability of pharmaceutical industry. India is one of the top emerging markets in the global pharmaceutical scene. The sector is highly knowledgebased and its steady growth is positively affecting the Indian economy. The organised nature of the Indian pharmaceutical industry is attracting several companies that are finding it viable to increase their operations in the country. India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, and Clinical Services across the globe. The exports of pharmaceuticals from India grew to US$ 14.6 billion in 2012-13 from US$ 6.23 billion in 2006-07, registering a compound annual growth rate (CAGR) of around 15.2 per cent. Among the top pharma companies, Abbott with total sales of Rs 4520.00 mn (US$ 74.76 million), Cipla with Rs 3220.00 mn (US$ 53.26 million), Sun Pharma with Rs 3130.00 mn (US$ 51.77 million), and Zydus Cadila with Rs 2680.00 mn (US$ 44.32 million) were the fastest growing companies in the month of September 2013. In terms of growth, Sun Pharma (17.8 per cent) is ahead of peers such as Cadila (1.8 per cent), Cipla (0.8 per cent) and McLeod (0.7 per cent). Indian pharmaceutical industry is a branded generics market dependent on international exports. Thus, during the present economic scenario, foreign MNCs like Novartis, Merck, Pfizer are worst affected in a highly fragmented and competitive generic industry. On one hand, high inflation and rupee depreciation are affecting their profits and on the other hand patent protection has become elusive in Indian pharmaceutical industry. The vast Indian population, improved medical infrastructure and increased per capita income have made India one of the most favored pharma destinations. Thus even in the present scenario, foreign players cannot ignore the growth potential of Indian pharmaceutical market with a population of over 1.2 billion. The pharma industry is worth Rs. 740000 mn and is growing at a pace of 12-14 per cent per annum. Sales of Indian pharmaceutical industry are expected to touch $29 billion by 2016.

OUTLOOK AND CONCLUSION At the current market price of Rs.1634.05 the stock P/E ratio is at 19.51x FY15E and 17.68 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.83.74 and Rs.92.43 respectively. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 9% and 13% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 11.69 x for FY15E and 10.50 x for FY16E. Price to Book Value of the stock is expected to be at 6.27 x and 5.26 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs.1797.00 for Medium to Long term investment. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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