Multinational pharmaceutical company Pfizer Ltd saw better profitability in its main operating segments in the February quarter. The company, which follows a December to November fiscal year, reported a 9% increase in operating income.
After its annual results, the company management had said that just like 2009, the current year will be a year of investment. It has been launching new products, restructuring sales operations into different business units for better focus, adding to field staff to widen reach and is supporting activities with marketing spends. These efforts and higher raw material costs had led to some impact on margins.
In the February quarter, raw material costs grew by around 12%, nearly 3 percentage points over sales growth. Still, Pfizer’s operating profit margins improved by around 2 percentage points to nearly 25%. This was mainly due to a 7.2% drop in employee costs and a relatively slower growth in other expenditure. Last year’s employee costs were affected by the adoption of accounting standard 15 (AS15) related to provision for employee benefits.
Graphic: Yogesh Kumar/Mint
The company had said that in 2010 cost hikes in raw material will be lower. This may reflect in future quarters but new product launches and hiring may see other costs move up. Higher depreciation costs and lower other income contributed to its net profit growing by only 9% despite margins improving.
In a post-results research note, Emkay Global Financial Services Ltd has estimated that Pfizer’s full-year profit in 2010 would grow by 17%. It expects Pfizer’s performance to improve due to new launches from its parent’s portfolio and through launches of branded generics, focus on key brands and rural markets.
In India, Pfizer and Wyeth Pharmaceuticals Inc. are planning to integrate their operations since Wyeth has been acquired by Pfizer globally. Wyeth, too, has a listed subsidiary in India, Wyeth Ltd. The integration programme is looking at business structures and products. How this will impact the financial performance of both companies is not clear at this stage, especially as there is no clarity on whether they will merge. But Pfizer is looking to expand its reach in the Indian market.
At the same time, the parent has also been seeking to hike its stake in its Indian subsidiary. Like some multinationals have done, it may even decide to delist the company to get full control and continue with its expansion plans for what is inarguably a key market for global pharmaceutical companies.
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