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Kotak Bullish on Pfizer India

September 27, 2007

Kotak Equity research has reiterated a BUY on Pfizer India with a price target of Rs 965.

Pfizer has announced its quarterly results for Q3CY07, which is disappointing at the revenue level. Net sales fell 1.6% to Rs.1.76 bn from Rs.1.78 bn. Reported net profit was up 9.8% to Rs.308 mn as compared to Rs.281 mn. The pharma and consumer healthcare business fell 3.5% to Rs.1.58 bn. The animal healthcare business rose 18% to Rs.179 mn and income from clinical development services declined 38.1% to Rs.43 mn.

The company is targeting 14% compounded revenue growth (for continuing business) and a 500 bps expansion in EBITDA margin by CY10. New launches through the parent’s portfolio as well as launch of patented products from CY08 onwards will be key revenue drivers. EBITDA margins are likely to improve from the existing 25% to about 30% by CY10 led by higher revenue growth, outsourcing of manufacturing and cost reductions in the distribution/supply chain areas.

Pfizer currently has 3.1 bn cash. It will receive 2.27 bn cash from sale of its Chandigarh property. Further 3.5 bn is expected from sale of its consumer health care business. In all it is likely to have Rs 10 bn in cash which translates to Rs 335 / share. At the current market price of Rs.720, the stock is trading at 14.5x CY07 and 12.1x CY08 earnings estimate. Kotak maintains BUY with a target price Rs.965.

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