Pfizer Inc.’s decision to separate its global animal health and nutrition businesses will come as a relief to some Indian investors and worry others.
In March, Pfizer’s new chief Ian Read told an analyst that he was considering a spin-off of the company’s non-core divisions, including its established products business, a division that sells generic products. That would have worried shareholders of companies such as Aurobindo Pharma Ltd, Strides Arcolab Ltd and Claris Lifesciences Ltd. Pfizer has deals with these companies to supply and market generic drugs globally. These agreements are expected to contribute significantly to their performance, as they scale up.
Pfizer’s decision to review this business may have culminated in a spin-off or sale, and could have raised a question mark over the future of these contracts. Now, Pfizer has decided to retain and expand its established products business, saying it will help drive growth in emerging markets. That clears any uncertainty on the contribution from these supply and marketing alliances for the Indian companies.
But Pfizer’s review has led to a decision to reassess options for its animal health and nutrition business. That will have some impact on its listed Indian subsidiary Pfizer Ltd (India). India ranks among Pfizer’s fastest-growing markets, thanks to the focus on growth in emerging markets and driving growth through generics.
In 2010-11, a 16-month period due to a change in Pfizer’s (India) fiscal, the animal health business contributed about 13% to sales and it had a segment margin of about 20%. A sale or a spin-off may see Pfizer (India) getting paid to transfer this business. That will be a shame because it was shaping up as a sizeable contributor to both size and growth, with user markets such as dairy, poultry and pets demonstrating growth potential. Pfizer (India), too, was doing well in this market and claimed to have grown faster than the industry in 2010.
The transfer of the animal health business, which had annualized revenue of about Rs 120 crore in 2010-11, will fetch a tidy sum. But that’s of little use to Pfizer (India), which already had cash of Rs 580 crore as on 31 March and is debt-free.
Acquiring domestic brands from the sale proceeds could add to growth, but multinational companies seldom seem to find something to buy, citing unreasonable valuations as the reason; hence, buyouts are few. A special dividend may see shareholders getting cash in hand. But that will be small consolation for losing out on a growing and profitable revenue stream.