The Indian Pharmaceutical Industry And Pfizer Company Economics Essay

Pfizer is one of the taking drug company companies in the universe with big portfolio of established drugs and operates globally in both developed and developing states with a cardinal focal point on emerging markets. It is one of the highest Spenders in pharmaceutical R & A ; D globally and has made clinical research investings of US $ 6.05 million ( November 2009 ) in India. Two of Pfizer India ‘s brands- Corex ( Cough Formulation ) and Becosules ( Multivitamin ) , continue to rank among the Top 10 pharmaceutical drug trade names.

In India, Pfizer instituted the first of all time Disease Management Program- Healthy Hearta„? in Cardio Vascular Disease ( Hypertension, Chronic Stable Angina and Dyslipidemia ) , in partnership with Apollo Hospital, Hyderabad and Apollo Hospital, Chennai.

Indian economic system has shown a great character with singular turnaround after the economic lag which started in 2008. Harmonizing to GOI, Indian economic system grew by 7.2 % during last financial twelvemonth i.e. 2009-10, an addition from 6.7 % last twelvemonth figure. To be more specific, the industrial sector has shown phenomenal public presentation, making a well high cumulative growing of 10.

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4 % . Assorted macroeconomic indexs impacting the pharmaceutical industry straight or indirectly are as follows.

Fiscal Deficit

Though the stimulus bundle offered by GOI has accelerated the economic activities, these steps have besides led to the increased financial shortage ( 6.8 % of GDP ) , the highest in decennary. The combined financial shortage comes out to be 10.5 % .

Current Account Deficit

Current history shortage has besides raised the concerns as it reached high degrees of 4.1 % this twelvemonth. Similarly Rupee appreciated by 11 % this twelvemonth vis-a-vis US Dollar chiefly on history of capital influxs.

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As Pfizer has a big market outside India, this sphere may be affected by bettering Rupee place in foreign currency market.

Inflation

Inflation has truly been a challenge for the industry as a whole in the past one twelvemonth as the cost of production increased quickly, therefore squashing on the net income borders of the companies. The WPI was 9.89 % higher in February than that of last twelvemonth.

Government Policies & A ; precedences

In order to beef up its trade dealingss with the neighboring and major trading spouses, it has got into assorted free trade understandings ( FTA ) discriminatory trade understandings etc, which will assist hike the Indian exports every bit good to the Asiatic states. “ Indo-US Trade Policy Forum Framework for Cooperation on Trade and Investment ” has shown positive marks for the growing of the sectors which are the strong point of Indian merchandises, one of the most outstanding being the drug company sector.

Foreign Trade Trends

Although this sector has been earnestly affected by the planetary recession in the yesteryear but has shown positive marks of recovery. Although the exports have declined by 4.7 % stretch at US $ 176.5bn & A ; imports slouching by 8.2 % stretch at US $ 278.6bn. The state of affairs in the first one-fourth had been rather worse but improved significantly in the 2nd half. Indian exports have shown an mean monthly growing rate of 27 % during Dec 09 to Mar 10. This has reflected the optimistic chances for the foreign trade market in close hereafter.

Industry Analysis

Basic Introduction

Indian drug company industry has come a long manner, being about nonexistent in 1970, to a outstanding supplier of wellness attention merchandises, run intoing about 95 % of state ‘s pharmaceutical demands. The domestic pharmaceutical end product has increased at a compound growing rate ( CAGR ) of 13.7 % per annum. Presently the Indian drug company industry is valued at about $ 8.0 billion. Globally, the Indian industry ranks 4th in footings of volume and 13th in footings of value. Indian pharmaceuticals industry has over 20,000 units. Around 260 constitute the organized sector, while others exist in the little graduated table sector.

A New World

The planetary generic industry is poised to turn at 10 % CAGR over 2007-2012. Most authoritiess have besides stated pro-generic steps in their policies. In the underdeveloped universe ( Latin America, Central Europe, Asia, Russia ) growing is driven by lifting population, increasing incomes and attendant rise in medicine incursion. Most of these markets are already preponderantly generic markets with Indian participants already holding a important presence in some of these markets. The domestic industries long established place as a universe leader in the production of high-quality generic medical specialties is set to harvest important new benefits as the patents on a figure of blockbuster drugs are scheduled to run out over the following few old ages. In add-on, more and more authoritiess worldwide are seeking to control their surging prescription drug costs through greater usage of generics.

Recent Enterprises

Government has offered financial inducements to R & A ; D units in Pharma sector. Government has besides come up with two new strategies specially targeted at drugs & A ; pharmaceutical research. These are: ‘The New Millennium Indian Technology Leadership Initiative ‘ ( NMITLI ) and the ‘Drugs and Pharmaceuticals Research Program ‘ ( DPRP ) . As per all such enterprises, foreign Direct Investment ( FDI ) up to 100 % is permitted ( capable to judicial admissions laid down from clip to clip ) through the automatic path in the instance of all majority drugs cleared by Drug Controller General ( India ) along with all their intermediates and preparations.

Advantage India

In add-on, India ‘s long-established place as a preferable fabrication location for transnational drug makers is rapidly distributing into other countries of outsourcing activities. Soaring costs of R & A ; D and disposal are carrying drug makers to travel more and more of their find research and clinical tests activities to the subcontinent or to set up administrative centres at that place, capitalising on India ‘s high degrees of scientific expertness every bit good as low rewards.

Market Potential

Both transnational and local drug makers could finally profit from the market potency of India ‘s population of over one billion. A big market will probably open up as the consequence of a jutting roar in wellness insurance, an country in which the state is presently deplorably developing. New authorities enterprises seek to enable the bulk of the population to entree the life-saving drugs they need, while even greater chances may be presented by the rise of the new Indian consumer. This group-urban, in-between category and wealthy-live fast-paced, Western-style lives and, as a consequence, they are get downing to endure from Western, lifestyle-related unwellnesss, for which they want, and can afford, advanced drug interventions.

Generic Race

Most of the planetary participants have joined the race of generic drugs. The analysis is as follows

Investor

Manner

Generic Partner

GSK

Supply agreement

Paces

Sanofi Aventis

Acquisition

Zentiva

Daiichi Sankyo

Acquisition

Ranbaxy

Pfizer

Supply understanding

Aurobindo Pharma

Fresenius

Acquisition

Dabur Pharma

Market Mentality

US Market

The US generic market remains a big chance for most Indian participants despite the of all time increasing competition in the market. Most Indian participants have resorted to colony of patent judicial proceeding. This leads to supplying certainty to hitherto unsure chances thereby bettering net incomes visibleness. It besides avoids draining of hard currency in expensive judicial proceedings

Europium Market

EU is a disconnected market with every market holding its ain drivers and constructions. Indian participants have been successful in the EU markets like UK which are based on the US generics theoretical account. Indian participants have an experience in tapping the branded generic markets since India is a branded generic market. Branded generic markets tend to be hard to perforate and by and large have a slow and steady growing.

Row markets ( include Russia, Latin America etc. )

Indian participants have been reasonably successful in tapping the emerging universe. The emerging universe markets like Central and Eastern Europe, Latin America, Russia/CIS are preponderantly branded generic markets and therefore hold constructions similar to the Indian domestic market, therefore giving the Indian participants an border over the other international participants.

Indian Pharma P/E multiples

Most of the Indian drug company companies are merchandising at 15X multiple, which is the lowest in last 5 old ages.

Similarly Indian Pharma P/E ratio is at 30 % premium to Sensex P/E, which is close to -1 standard divergence in last 8 old ages.

Company analysis

Performance Highlights

Year

2005

2006

2007

2008

2009

Operating income/Sales

A 660.89

A 728.96

A 731.31

A 729.02

A 831.04

Operating Net income

A 142.19

A 171.83

A 163.57

A 160.53

A 169.08

PAT ( Adjusted )

A 100.09

A 122.82

A 86.14

A 96.56

A 157.10

Retained EarningsA

A 229.66

A 286.00

A 483.89

A 705.36

A 766.98

Looking at the past record of the house, it can be easy determined that the company has steadily improved upon its runing income every bit good as net incomes that excessively in the thin times of 2009. PAT has an impressive figure with a immense leap vis-a-vis old twelvemonth. Retained net incomes have improved which suggests that the militias with the company are steadily increasing.

Ratio Analysis

Ratios/Years

2005

2006

2007

2008

2009

Entire Debt/EquityA

A 0.00

A 0.00

A 0.00

A 0.00

A 0.00

EPS ( Rs )

A 22.83

A 35.43

A 113.58

A 100.24

A 45.87

NPM ( % )

A 10.65

A 14.64

A 32.42

A 38.78

A 15.77

Current RatioA

A 2.25

A 2.66

A 3.53

A 1.87

A 5.23

Inventory Turnover RatioA

A 8.60

A 8.63

A 8.89

A 6.75

A 8.14

Quick RatioA

A 1.75

A 2.12

A 3.03

A 1.71

A 4.55

Fixed Assets Turnover RatioA

A 3.89

A 4.34

A 5.17

A 5.22

A 4.43

Dividend payout Ratio ( Net Net income ) A

A 49.95

A 40.23

A 28.32

A 14.59

A 31.88

Cash Earnings Retention RatioA

A 70.14

A 68.71

A -0.29

A 59.48

A 73.62

Looking at the assorted ratios, we can gauge that the company is running on pure equity & A ; carries less hazard. Net incomes per portion had a dip in the yesteryear but it ‘s now back on the path. Inventory turnover, fixed plus turnover ratios suggest the impressive operative public presentation of the company ; it reflects the internal efficiency of the company.

Peer Analysis

Ratio/Company

Pfizer

Ranbaxy

Cipla

Glaxo

Smithkline

Dr Reddy

EV/Sales

2.7

3.1

3.7

9.8

3.2

EV/EBITDA

6.4

35.2

14.4

27.8

14.7

P/BV

3.55

4.47

5.93

9.83

3.91

P/E Ratio

25.57

32.33

33.13

32.97

27.34

Roe

13.76

14.44

17.88

29.12

14.30

Entire Debt/EquityA

A 0.00

0.84

0.21

0.00

0.09

EPS ( Rs )

A 45.87

13.61

9.99

61.88

50.11

NPM ( % )

A 15.77

11.72

14.58

25.74

18.48

Current RatioA

A 5.23

1.43

2.82

3.06

1.94

Inventory Turnover RatioA

A 8.14

4.05

3.79

7.71

5.39

Quick RatioA

A 4.55

0.88

1.93

2.63

1.45

Fixed Assets Turnover RatioA

A 4.43

2.00

1.94

6.52

1.86

Dividend payout Ratio ( Net Net income ) A

A 31.88

0.00

23.41

57.42

26.19

Cash Earnings Retention RatioA

A 73.62

100.00

84.30

45.57

78.16

Market Cap ( Cr. )

12,100

18,684

26,545

17,194

23,132

Recommendation

Merely looking at the equal rating, I can state that this company is undervalued as of now & amp ; holding the lowest P/E ratio as compared to other major drug company participants in India. EV/Sales and EV/EBITDA ratios are besides low compared to other industry participants which indicate that the EV of the company is undervalued, which in bend indicate the lower market cap & A ; therefore the under-pricing of the stock. The return on equity has non been impressive as compared to its equals & A ; it suggests that the returns of the company have non been as per its public presentation because of the stock being undervalued. Assorted runing ratios every bit good as the purchase ratios of the company suggest that the public presentations every bit good as the liquidness of assets of the company are of good quality. It has been retaining the high sum of hard currency because of its programs to spread out large clip in the close hereafter. The lower P/E multiple indicates the stock to be a value stock. Dividend payout ratio of the company is besides impressive vis-a-vis its equals & A ; therefore attracts the investors to put.

As per the industry analysis and economic factors every bit good, drug companies industry is bound to turn in a rapid mode in the close hereafter. Therefore, puting in a stock like Pfizer, which has one of the best operating public presentations across the industry with greater R & A ; D disbursement, therefore presenting an optimistic hereafter in front, will be a wise determination. I, herewith, urge purchasing the Pfizer stock & A ; keeping it for long term. I believe that the stock will supply immense returns in a clip skyline of 2-3 old ages.

P.S. All the computations for the ratios & A ; ratings have been done in separate excel sheet.

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The Indian Pharmaceutical Industry And Pfizer Company Economics Essay. (2020, Jun 02). Retrieved from https://studymoose.com/the-indian-pharmaceutical-industry-and-pfizer-company-economics-new-essay

The Indian Pharmaceutical Industry And Pfizer Company Economics Essay

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