Pfizer Limited — Q4 FY17 earnings call

Call held 18 May 2017

Management summary

Pfizer India faced a perfect storm in FY17, navigating a ₹450-500 crore revenue hit from the Corex FDC ban, NLEM price reductions, and portfolio divestments. Despite these headwinds, the company maintained stable gross margins and saw double-digit growth in its core non-regulated brands like Prevenar 13. Management is now focused on a 'rebased' growth strategy, leveraging the new Meronem distribution deal and Corex line extensions to recover lost volumes within a year.

Highlights

  • Revenue from operations for Q4 stood at ₹453 crores, a decline of 15.3% YoY due to regulatory and pricing impacts.

  • Full-year FY17 revenue reached ₹2,042 crores, down 2% YoY, impacted by a ₹450-500 crore headwind from pricing, Corex withdrawal, and divestments.

  • Net Profit for the year increased to ₹333 crores from ₹306 crores YoY, aided by exceptional income of ₹130 crores from brand and asset sales.

  • EBITDA margin for the year compressed to 17.3% compared to the historical range of 21-22% due to revenue declines.

  • The non-price controlled portfolio (84% of total) showed resilience, growing at 10% YoY.

  • Board recommended a total dividend of 200% (₹20 per share), including a 50% special dividend from exceptional gains.

Concerns

  • Generic-Generic Prescription Mandate

  • DPCO Pricing Pressure

Key financials

  1. Revenue ₹453 Cr -15.3%YoY
  2. Net Profit ₹65 Cr -26.1%YoY
  3. Full Year EBITDA Margin 17.3%
  4. Full Year PAT ₹333 Cr +8.8%YoY
  5. Dividend per Share ₹20

What they filed

Q1 FY27: revenue up 8.3%, net profit up 6.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue589 538 592 603 642 +9%645 +20%629 +6%653 +8%
EBITDA189 146 228 210 230 +22%228 +56%236 +4%248 +18%
Net profit158 128 331 192 189 +20%142 +11%200 −40%204 +6%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Continuing Business
    4% Quarterly Growth5% Full Year Growth
  • Non-Price Controlled Portfolio
    84% Portfolio Share10% Growth Rate

Guidance & targets

Revenue

  • Recovery of lost revenue Revenue · next 1 year · Medium confidence ₹450-500 crores
    enable us to actually get back some of those lost revenues of 2017 in probably a years’ time.

    — S. Sridhar, Managing Director

Margin

  • Gross Margin Margin · FY18 · High confidence 58-60%
    I think around 58% to 60% a couple of points here and there, we could manage it.

    — Ravi P. Bhagavathula, CFO

Market Share

  • Growth vs Market Market Share · FY18 · Medium confidence Market beating
    Our intent is to grow higher than the market because we want to be market beating growth in the normal course of business.

    — S. Sridhar, Managing Director

Other

  • Corex Franchise Extensions Other · next few months · High confidence 4-5
    We do our plans for four or five. If the next one also does well it will give us appetite for us to continue launching a little more of the franchise.

    — S. Sridhar, Managing Director

Risks & concerns

  • Generic-Generic Prescription Mandate

    high

    Government push for doctors to prescribe generic names instead of brands could erode Pfizer's brand equity and doctor relationships.

    Both acknowledged

  • DPCO Pricing Pressure

    high

    Lost ₹80 crores in FY17 due to NLEM and negative WPI adjustments; conflict with NPPA on cost-based vs market-based pricing continues.

    Management acknowledged

  • GST Transition Slowness

    medium

    Short-term adjustment in processes and potential destocking by trade ahead of July 1st rollout.

    Management acknowledged

Areas of evasion (2)

  • Specific timelines for new product launches beyond Meronem.
  • Long-term capital allocation strategy for the ₹1,500 crore cash.

Q&A highlights

1 direct, 1 evasive
Impact of GAVI/NIP Prevenar 13 deal on Pfizer Ltd Direct
This transaction does not go through Pfizer Limited books... GAVI is a global Organization. They are donating the brands... I do not think it is going to have a cannibalization at all.

Clarifies that the massive government vaccine program is handled by the parent (Pfizer Inc) and won't directly benefit or cannibalize the listed entity's private market sales.

Asked by Ravi Purohit

Generic-Generic Prescription Risk Partial
I cannot quantify the number but there are doctors who have put in notice boards which say please do not visit me I am only onto generic prescription... things are still hazy.

Highlights a major regulatory risk where government policy could disrupt the branded generic model that MNCs like Pfizer rely on.

Asked by Ashi Anand

Utilization of ₹1,500 Crore Cash Balance Evasive
At this juncture, we have not really thought about it... As on today, for me I am going to use the cash to see what best I can do to deploying the business.

Management is prioritizing internal growth/M&A over returning the significant cash pile to shareholders, despite analyst pressure for a larger payout.

Asked by Kashyap Pujara

2 min read 5 chapters

Detailed narrative

Regulatory and Pricing Headwinds

FY17 was characterized by severe regulatory pressure, with the company losing approximately ₹80 crores due to NLEM list updates and negative WPI adjustments. Management expressed frustration with the NPPA's recomputation of prices under Para-18, which was unexpected. These pricing actions, combined with the FDC ban, created a total annualized P&L impact of ₹450 crores to ₹500 crores.

The Corex Franchise Pivot

Following the ban on Fixed Dose Combinations (FDC), Pfizer voluntarily withdrew the original Corex Cough Formulation despite a favorable High Court ruling, citing ethical concerns over adverse usage. To mitigate the loss, the company is pivoting to a 'Corex Franchise' model, including Corex DX (non-codeine) and the newly launched Corex T. Management plans to launch 4-5 additional line extensions to regain the ₹185 crore revenue lost from the original product.

Strategic Portfolio Expansion via Meronem

A key pillar of the recovery strategy is the distribution agreement with AstraZeneca for Meronem, an anti-infective with an estimated annual revenue of ₹100 crores in India. Billing commenced in May 2017. This addition, alongside other planned launches, is intended to help the company achieve 'market-beating' growth and return to a flat revenue base on a like-to-like basis by the end of FY18.

Prevenar 13 and the GAVI Impact

Prevenar 13 has become Pfizer India's number one brand, maintaining a 60% market share in the private sector. While the government has introduced the vaccine into the National Immunization Program (NIP) via a GAVI donation from Pfizer Inc., management insists this will not cannibalize private sales. They argue the public and private markets serve distinct socioeconomic segments, and the NIP inclusion actually validates the product's clinical superiority.

Operational Restructuring and Efficiency

Internally, Pfizer has restructured its business into separate commercial selling and marketing teams to improve customer centricity. The field force of approximately 2,000-2,300 people has been reorganized into Critical Care, Primary Care, and Chronic Care teams. This restructuring is aimed at creating efficiencies to offset the impact of annual increments and declining sales revenue on the employee expense ratio.

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