Pfizer Ltd’s November quarter results appear spectacular at first, but seem more normal once revenue from clinical services and the base effect are discounted. The company’s overall revenue rose by 29% to Rs 261 crore, while its operating profit rose by 59% to Rs 48.3 crore, and its net profit by 72% to Rs 43.6 crore. Such results are a sight for sore eyes, in times such as these. But some caveats are in order.
Pfizer’s revenue can be split into pharmaceuticals, animal health and clinical services (provided to the parent firm). In the November quarter, income from clinical services was Rs 25 crore, compared with Rs 6.7 crore in the year-ago period. This accounts for much of the sharp rise in revenue. Revenue in the clinical services business tends to bunch up in certain periods, so this figure could well drop in future quarters. It was about Rs 11 crore in the August quarter, for example.
Sales in its core pharma business rose by 21% over the year-ago period to Rs 206 crore, much better than the 14% growth seen in the August quarter. On a sequential basis, however, its sales have risen by barely 1%. Now, sequential comparisons are generally inappropriate in this sector, due to seasonal effects. But the November 2009 quarter had seen sales decline on a sequential basis, which may have created a slight low base effect too, and needs to be factored in. Sales of Pfizer’s animal health products rose by a smart 20% in the quarter, over the year-ago period.
Thus, Pfizer’s core business is growing by around 20%, and reflects the underlying strength of the domestic pharma market. On the expenditure front, its raw material consumption has risen sharply by 36%, while employee costs have risen by around 21%. Its operating profit margin has been protected by the higher proportion of service income, and rose by 3.5 percentage points.
Pfizer’s net profit growth also benefited from a 38% increase in other income. Exceptional expenses amounted to only Rs 30 lakh, compared with Rs 4.4 crore in the year-ago period. Both operational and non-operational events have, thus, combined to boost Pfizer’s performance.
If it can sustain revenue growth in its core pharma and animal health business at current levels, and if raw material costs level off, Pfizer could contribute to a good performance in the year ahead.
But if raw material prices increase at this pace, it could result in lower margins.
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