BUSINESS VALUATION OF PFIZER LIMITED

PROJECT REPORT

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 Table of Contents

Sr. No. TOPIC Page No.

1 Introduction 3-4
1.1 Company Background 3
1.2 Industry Overview 4

2 Cost of Capital 5-7

2.1 Risk Free Rate Calculation 5
2.2 Levered Beta of Pfizer Ltd. 5
2.3 Cost of Equity 6
2.4 Cost of Debt 6
2.5 WACC 7
3 Measured Earnings and FCFF Calculation 7-10
3.1 Adjustment for recent quarters 7
3.2 R&D Adjustment 8
3.3 Capex Calculation 8
3.4 Working Capital Calculation 8
3.5 Adjusted EBIT and FCFF 9
3.6 Reinvestment rate and Growth Rate 10
4 FORECASTING AND VALUATION 10-15
4.1 Top Down Analysis 10
4.2 Forecasting 12
4.2.1 Operating Income 12
4.2.2 Capital Expenditure 13
4.2.3 Working Capital 13
4.3 Intrinsic Value Calculation 13
4.4 Sensitivity Analysis 14
5 Relative Valuation 15
5.1 Comparable Company Analysis 15
5.2 Valuation Summary 15

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 1. Introduction

1.1 – COMPANY BACKGROUND

Pfizer Ltd. began commercial operations in India in 1950. The company is a stepdown
subsidiary of Pfizer Inc, USA and a direct subsidiary of Pfizer Netherlands.
Pfizer manufactures vaccines and pharmaceutical formulations in anti-infectives,
vaccines, vitamins, gastro intestinal, and pain management. The company has its
manufacturing plant at Goa.
Pfizer India has a product basket of 150 brands. Key brands include Prevanar13,
Becosules, Magnex, Dolonex, Minipress, Corex to name a few.
Acquisition of Wyeth In 2009, Pfizer Inc. globally acquired Wyeth Laboratories. The
Indian arms continued as separate listed companies until 2014. In FY15 the two Indian
arms merged into a single entity. Wyeth has been prominently into Women’s Healthcare
with brands like Folvite, Autrin, and Premarin, which are market leaders in their
respective represented market.
In FY17 major Wyeth products came under NLEM, impacting revenues by Rs 800 mn and
EBITDA by Rs 1050 mn.
In June’2017, Pfizer India acquired NEKSIUM from Astrazeneca AB, Sweden for Rs 750
mn. NEKSIUM is a proton pump inhibitor used to reduce acid secretion in the stomach.
The product is complementary to Pfizer’s gastroenterology products namely Gelusil and
Mucaine gel.
In July’2019, Pfizer Inc announced a joint venture between Upjohn (Subsidiary of Pfizer
Inc.) and Mylan, US. Six brands will move to the Upjohn Mylan joint venture. The products
are Lyrica, Amlogard, Daxid, Diantin, Viagra and Fumycin, comprising 5-6% of Pfizer
India revenues. Lyrica and Daxid are amongst the top 25 products. Lyrica partially went
off patent in June’19 in the US with patents for pediatric application of the drug, gradually
going off patent upto 2022. The venture is expected to be approved by mid-2020.

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1.2 – INDUSTRY OVERVIEW

The Indian healthcare sector is expected to reach USD 280 billion in revenue by 2020
and USD 370 billion by 2022, driven by rising income levels, greater health awareness,
improved access to insurance, both public and private, and a continuing uptick of
lifestyle diseases, are seen as the key factors behind
this growth.
In the fiscal year 2018-19, the Government of India increased budgetary allocation to
healthcare by 27.7% over the previous fiscal, increasing the total allocation to `47,352
crore. While this is in the right direction, India still is short of achieving the goal of
healthcare spend of 2.5% of the GDP by 2025 as envisaged in the National Health Policy
2017.
The Indian pharma market (IPM) grew at 10.5% over the period April 2018 to March
2019, with a turnover of `134,780 crore. The current growth of 10.5% has been driven
largely by launch of new products, which contributed 3.8% to the total, followed by
volumes at 3.7% and price growth at 3%. Multinational companies hold about 20% share
in the market and have grown at 9.4% (MAT Mar 2019).
Chronic therapies continue to lead the growth trajectory of the Industry. In fact, looking
at the growth and incremental value added, Cardiac therapy is likely to overtake Anti-
infectives and become the top therapy area within the Industry in the next few months.
Anti-diabetics has the highest growth rate of 14% among the key therapy areas. The
Acute Care segment, is also growing at 10%, which is a marked increase over last year’s
rate of 6%. Key growth drivers for the acute market have been Dermatology and
Gynaecology with 13% each and Vitamins & Supplements with 12%.

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 2. COST OF CAPITAL

2.1 RISK FREE RATE CALCULATION

Risk free rate of Pfizer in India can be calculated by taking 10-year bond rate of mature market
(US) and by subtracting default spread of India out of it.

Source :- Aswath Damodaran Website

INDIA US
Adjusted Default Spread 2.15% 0%
ERP 8.60% 5.96%
Country Risk Premium 2.64% 0%
Corporate tax rate 35% 25%
Moody's Rating Baa2 Aaa
10 year US Bond 6.52% 1.83%

Rupees Dollar
Risk free (Rf) (10 year US Bond - Default Spread)
10 year US Bond - Default Spread 4.37% 1.83%
ERP

Approach 1
Base Risk Premium+ Country Risk Premium 8.60% 5.96%
Approach 2
NIFTY VIX ( Dated 21/11/19 8:00 pm) 14.98
S&P VIX (Dated 21/11/19 8:00 pm) 12.94
Relative Standard Deviation of X 1.157651 1
Relative Standard Deviation of X * Base Risk Premium 6.90% 5.96%

2.2 LEVERED BETA OF PFIZER LIMITED

To calculate unlevered beta, we have taken 5 top players from Indian pharmaceutical
market.
Weighted
Pharma industry majors Market Cap (In Rs. Cr.) Weights Levered Beta D/E Weigthed D/E
levered beta
Cipla 39,055.87 0.15 0.51 0.00% 0.078 0.00%
Aurobindo Pharm 25,171.92 0.10 0.82 40.00% 0.126 6.14%
Lupin 34,894.53 0.14 0.52 0.00% 0.080 0.00%
Dr Reddys Labs 47,835.85 0.19 0.29 7.00% 0.045 1.08%
Sun Pharma 107,298.26 0.42 0.19 26.00% 0.029 3.99%
Total 254,256.43 0.358 11%

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 Industry effective Tax Rate 34.94%
Unlevered Beta 0.333571579

Calculation of Levered Beta

Market Value of Equity(Mcap) (In
18,883.75
Rs. Cr.)
Market Value of Debt (In Rs. Cr.) 0.00
Debt to Equity Ratio (D/E) 0.00%
Unlevered Beta for Indian
0.333571579
Pharmaceutical Industry
Effective Tax Rate 34.94%
Levered Beta 0.67

2.3 COST OF EQUITY

Cost of equity = Rf+βERP

Particulars Rupees Dollars
Risk Free Rate 4.37% 1.83%
Equity Risk Premium 8.60% 5.96%

Beta 0.67 0.67

Cost of Equity using CAPM 10.11% 5.81%

2.4 COST OF DEBT

Cost of debt = Rf+ Company default spread + Country default spread

Company Credit Rating AA+

Company Default Spread as per above rating 1.00%
Particulars Rupees Dollars
Risk Free Rate 4.37% 1.83%
Company Default
Spread 1.00% 1.00%
Country Default Spread 2.15% 0%
Cost of Debt 7.52% 1.85%

Note :- Pfizer ltd. Has zero lease financing. So there is no need to adjust it for lease.

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2.5 WACC

As company is debt free so cost of equity is equal to cost of capital.

Equity Debt Capital
Market Value (In Rs. Cr.) 18,883.75 0.00 18883.75
Weight in Cost of Capital 100.00% 0.00% 100.00%
Cost of Component (In Ruppes) 10.11% 0.00% 10.11%
Cost of Component (In Dollors) 5.81% 0.00% 5.81%

3. Measured Earnings and FCFF Calculation

3.1. Adjustment For Recent Quarters:- All the values can be adjusted for recent
quarter using recent quarter result.

Sales (Sep-19) = Sales (Mar-19) + Sales (Jun-19 Qt.) + Sales (Sep-19 Qt.) – Sales
(Jun-18 Qt.) + Sales (Sep-18 Qt.)

Narration Sep-19 Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Sales 2,160.91 2,081.50 1,968.51 1,966.26 2,012.34 1852.54
Expenses 1,524.75 1,515.87 1,467.87 1,616.13 1,579.46 1438.45
Operating Profit 636.16 565.63 500.64 350.13 432.88 414.09
Other Income 180.38 167.39 114.29 231.59 96.88 44.43
Depreciation 85.51 71.39 66.25 62.93 57.93 249.52
Interest 6.10 1.72 0.77 1.96 1.40 1.51
Profit before tax 724.93 659.91 547.91 516.83 470.43 207.49
Tax 216.46 230.86 187.84 180.05 165.44 137.68
Net profit 508.47 429.05 360.07 336.78 304.98 69.82

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 3.2. R&D Adjustment – There is no R&D investment since last two years but before
that company was investing in R&D.
Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
R&D expense 22.3579 23.8002 24.5716 28.352 29.2657 2.13344 8.5337 6.4769 17.58 14.8204 17.3986 20.5382 27.5004 0 0

R&D 2019 Unamoritized portion Unamortized portion Amortization this year

0 0 100% 0 0
-1 0 90% 0 0
-2 27.5004 80% 22.00032 2.75004
-3 20.5382 0.70 14.37674 2.05382
-4 17.3986 60% 10.43916 1.73986
-5 14.8204 50% 7.4102 1.48204
-6 17.58 40% 7.032 1.758
-7 6.4769 30% 1.94307 0.64769
-8 8.5337 20% 1.70674 0.85337
-9 2.13344 10% 0.213344 0.213344
-10 29.2657 0% 0 2.92657
65.121574 14.424734

Like this we can calculate it for all 5 years.

3.3. Capex Calculation

Adjusted Capex = Net PPE + Acquisition – Divesture + R& D – Depreciation

Sep-19 2019 2018 2017 2016 2015

Purchase of Assets 5.33 4.49 102.69 25.29 43.67 20.57
Sales of Assets 31.28 31.36 33.34 193.89 96.62 0.36
Acquisition Made of any company 0 0 0 0 0 0
Divesture/Sale of any subsidiary 0 0 0 0 0 0
R& D 0 0.0 0.0 27.5 20.5 17.4
Net Capex -26.0 -26.9 69.4 -141.1 -32.5 37.6

3.4. Working Capital Calculation: -

WC from a cash flow perspective = Non-cash current assets (inventory, accounts

receivable and other current assets) – Non-debt current liabilities (accounts payable and
other current liabilities)

Sep-19 2019 2018 2017 2016 2015 2014

Current Assets
Inventories 316.57 386.66 297.06 321.9 360.68 387.9 151.5
Trade receivables 207.45 171.66 154.8 110.32 142.3 157.87 173.39
Other current assets 162.48 238.63 164.96 69 80.14 14.3 5.38
Total current assets 686.5 796.95 616.82 501.22 583.12 560.07 330.27

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 Current Liabilities'
Trade payables 380.61 435.92 0 0 337.92 334.2 159.93
Short term provisions 55.96 62.37 63.52 58.19 55.03 185.56 35.67
Other current
463.74 390.9 888.42 718.98 265.46 86.6 54.68
liabilities
Total current
900.31 889.19 951.94 777.17 658.41 606.36 250.28
liabilities

Working Capital -213.81 -92.24 -335.12 -275.95 -75.29 -46.29 79.99

Change in WC -121.57 242.88 -59.17 -200.66 -29 -126.28

3.5. Adjusted EBIT and FCFF

Adjusted EBIT = Operating income + R&D expenses – Amortization of research

asset

FCFF = EBIT × (1-t) + Non-cash charges – Capital Expenditure – Working

Capital Investment

Year Sep-19 2019 2018 2017 2016 2015

Revenue from operations 2160.9 2081.5 1968.5 1966.3 2012.3 1852.5
Expenses 1524.8 1515.9 1467.9 1616.1 1579.5 1438.5
Operating Profit(Ex OI) 636.2 565.6 500.6 350.1 432.9 414.1
Other Income 180.4 167.4 114.3 231.6 96.9 44.4
Operating Income 816.5 733.0 614.9 581.7 529.8 458.5
Operating Lease Expense 0.0 0.0 0.0 0.0 0.0 0.0
Depreciation on leased asset 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted Operating Income 816.5 733.0 614.9 581.7 529.8 458.5
Depreciation 85.5 71.4 66.3 62.9 57.9 249.5
EBIT 731.0 661.6 548.7 518.8 471.8 209.0
Interest Expenses 6.1 1.7 0.8 2.0 1.4 1.5
PBT 724.9 659.9 547.9 516.8 470.4 207.5
Tax 216.5 230.9 187.8 180.1 165.4 137.7
Effective tax rate 29.859% 34.984% 34.283% 34.837% 35.168% 66.355%
EBIT(1-T) 444.117539 401.955443 333.3357 315.1769 286.6476 126.9723
Add: R&D expense 0.0 0.0 0.0 27.5 20.5 17.4
Less: Amortization of R&D 14.4 14.4 17.3 17.0 17.3 17.8
Adjusted EBIT 429.7 387.5 316.1 325.7 289.9 126.6
Net Capex -26.0 -26.9 69.4 -141.1 -32.5 37.6
Minus working capital -121.57 242.88 -59.17 -200.66 -29 -126.28
FCFF 577.2 171.5 305.9 667.5 351.3 215.3

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 3.6. Reinvestment rate and growth rate :-

Year Sep-19 2019 2018 2017 2017 2015

Reinvestment -233.0 144.6 -56.1 -404.7 -119.4 -338.2
Reinvestment rate% -52.47% 35.98% -16.82% -128.40% -41.65% -266.35%
Equity 3156.08 3011.34 2683.2 2418.88 2163.5 1973.01
R&D Asset 50.69684 50.69684 62.28637 79.83919 68.97964 65.23877
total 3206.77684 3062.03684 2745.486 2498.719 2232.48 2038.249
ROIC 13.85% 13.13% 12.14% 12.61% 12.84% 6.23%
Growth 6.12% 4.72% -2.04% -16.20% -5.35% -16.59%

Growth rate was negative earlier due to higher capital expenditure and the company was
struggling in Indian market but after the launch of some vaccines Pfizer limited started
to set foot in the Indian market with 6.12 % growth and expected to reach 10% growth
in next 5 years.

4. FORECASTING AND VALUATION

4.1. Top Down Analysis:

Following highlights are captured from Pfizer’s annual report and conference call
highlights: -
1. The Indian pharma market (IPM) grew at 10.5% over the period April 2018 to
March 2019, with a turnover of `134,780 crore. The current growth of 10.5% has
been driven largely by launch of new products. the market growth is expected to
stabilize around 10%. On the consumption side, the spend on medicine in India is
projected to grow between 9% and 12% over the next five years.
2. Pfizer India is the market leader in 10 of its top 20 brands, which include Prevanar
13, Becosules, Magnex, Dolonex, Enbrel, Corex Dx, Folvite and some more. The
market position of its brands has enabled Pfizer to take price increases in NLEM

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 (4.6%) and non NLEM products (9-9.5%). Pfizer continues to benefit from
Prevanar 13, its largest brand in India (16-17% of sales) in the long run.
3. We expect Pfizer revenues to grow at 10% CAGR by FY24E. We expect the next 6
products (ex Prevanar 13) to grow at 11% CAGR by FY24E.We expect patented
products to grow at 23% CAGR by FY24. The growth will be mainly driven by the
launch of Zavicefta and Xeljanz, and a 9% growth in Prevanar 13 and ENBREL.

Year 2019 2020F 2021F 2022F 2023F 2024F

Industry Growth Rate
Pharmaceutical
10.50% 10.70% 10.80% 10.90% 11.00% 11.20%
industry
Projected Market Share
Pfizer 2.19% 2.30% 2.50% 2.70% 3.00% 3.30%
Estimated Growth Rate Using Market Share & Industry Growth Rate
Pharmaceutical
6.00% 7.00% 8.00% 9.00% 10.00%
industry

4. Pfizer has better pricing power with its suppliers and from Concall and other
sources it was found that the material cost is nearly fixed with percentage of sales.
So we have assume that they will maintain it at 36.6% in coming years.
5. Pfizer ltd. provides annual increments, higher bonus and performance payment
accruals and wage revisions. But with past data, we have assumed that they will
maintain employee cost to be around 16.60% of sales.
6. Company has nearly zero financing cost. Other expenses are assumed to be more
or less similar. Revenues have been forecasted to grow in future. Hence we assume
total other expense as % of sales stays at 23.2% in coming years.
7. The Company intends to continue to invest in new products and technologies to
meet consumer and regulatory requirements. These investments are intended to
enable the Company to pursue further growth opportunities and improve the
Company’s competitive positioning.
8. We are assuming capex to stay same to capacity/ expansion of facilities, quality
and reliability projects and product development projects. We assume Asset
turnover ratio to remain at2.3 per year for the next 5 years.
9. We are assuming COGS to increase in future years. Also we assume faster rotation
of inventory in future years due to efficient management of inventory.

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 10. We assume DSO decrease gradually for further years due to faster collection of the
amount which the company has billed to its customer for selling its goods/services
for which amount has not paid yet.
11. We assume that company will maintain a rate of around 10% in other current
investment for coming years.
12. We are assuming Payables deferral period to be constant as near to last year i.e.
150 for next 5 years.
13. We are assuming othe current liabilities to be constant as near to last few year i.e.
25% of sales for next 5 years.

4.2. Forecasting

I. Operating Income –
FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Revenue from operations 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Other Income 44.40 96.90 231.60 114.30 167.40 184.14 202.55 222.81 245.09 269.60
Total Revenue 1,896.94 2,109.24 2,197.86 2,082.81 2,248.90 2,390.53 2,563.39 2,772.51 3,024.27 3,326.69
8.63% -2.29% 0.11% 5.74% 6% 7% 8% 9% 10%

Expenses Forecasting
Material Expense FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Cost of materials consumed 385.84 373.11 387.54 302.52 343.65
Purchases of stock in trade 436.38 362.09 424.70 409.65 495.13
Changes in inventory of finished goods -82.36 51.89 -15.76 27.51 -90.88
Total material expense 739.86 787.09 796.48 739.68 747.90
Revenues 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Material Expense as % of sales 39.94% 39.11% 40.51% 37.58% 35.93% 36.6% 36.6% 36.6% 36.6% 36.6%
Material Expense 739.86 787.09 796.48 739.68 747.90 807.54 864.07 933.19 1017.18 1118.90

Employee Expense FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Employee Benefit Expense 236.36 277.34 303.89 314.29 323.84
Revenues 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Employee Benefit Expense as % of sales 12.76% 13.78% 15.46% 15.97% 15.56% 16.60% 16.60% 16.60% 16.60% 16.60%
Employee benefit expense 236.36 277.34 303.89 314.29 323.84 366.26 391.90 423.25 461.34 507.48

Other Expense FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Finance Cost 0.77 0.52 0.96 0.42 1.29
Other expenses 494.14 515.91 516.76 414.25 444.56
Total other expense 494.91 516.43 517.72 414.67 445.85
Revenues 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Total other expense as % of sales 26.72% 25.66% 26.33% 21.07% 21.42% 23.20% 23.20% 23.20% 23.20% 23.20%
Total other expense 494.14 515.91 516.76 414.25 444.56 511.88 547.71 591.53 644.77 709.25

Total Expense 1,470.36 1,580.34 1,617.13 1,468.22 1,516.30 1,685.68 1,803.68 1,947.97 2,123.29 2,335.62
EBITDA 426.58 528.90 580.73 614.59 732.60 704.85 759.71 824.54 900.98 991.07
EBITDA Margin 23.03% 26.28% 29.53% 31.22% 35.20% 31.95% 32.18% 32.34% 32.42% 32.42%

Depreciation Expense FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Depreciation & Amortisation 131.08 57.93 62.93 66.25 71.39
Revenues 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Depreciation & Amortisation as % of sales 7.08% 2.88% 3.20% 3.37% 3.43% 3.50% 3.50% 3.50% 3.50% 3.50%
Depreciation & Amortisation 131.08 57.93 62.93 66.25 71.39 77.22 82.63 89.24 97.27 107.00

EBIT 295.50 470.97 517.80 548.34 661.21 627.62 677.08 735.30 803.71 884.08
EBIT(1-t) 224.58 357.94 393.53 416.74 502.52 476.99 514.58 558.83 610.82 671.90
Depreciation & Amortisation 131.08 57.93 62.93 66.25 71.39 77.22 82.63 89.24 97.27 107.00

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 II. Capital Expenditure –
Capex Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Revenue from operations 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Net Block 944.34 961.37 645.87 642.71 886.19
Asset Turnover Ratio 1.96 2.09 3.04 3.06 2.35 2.3 2.3 2.3 2.3 2.3

Forecasted capex 959.30 1026.45 1108.57 1208.34 1329.17

Incremental Capex 73.11 67.15 82.12 99.77 120.83
Capex 37.61 -32.45 -141.10 69.35 -26.87 73.11 67.15 82.12 99.77 120.83

III. Working Capital Forecast :-

Inventory Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Cost of materials consumed 385.84 373.11 387.54 302.52 343.65
Purchases of products in sale 436.38 362.09 424.70 409.65 495.13
Changes in inventory of finished goods -82.36 51.89 -15.76 27.51 -90.88
Cost of Goods Sold 739.86 787.09 796.48 739.68 747.90 807.54 864.07 933.19 1,017.18 1,118.90
Inventory 387.90 360.68 321.90 297.06 386.66
Inventory Turnover Ratio 1.91 2.18 2.47 2.49 1.93
DSI 191 167 148 147 189 190 192 195 199 200
Inventory 387.90 360.68 321.90 297.06 386.66 420.36 454.52 498.55 554.57 613.09

Trade Receivables Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Revenue from operations 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Debtors 157.87 142.3 110.32 154.80 171.66
Debtors turnover ratio 11.73 14.14 17.82 12.72 12.13
DSO 31 26 20 29 30 31 32 33 34 35
Trade Receivables 157.87 142.3 110.32 154.8 171.66 187.39 206.98 230.52 258.88 293.15

Other Current Assets Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Other Current Assets 98.22 86.25 96.00 193.00 244.01
Revenue from operation 1,852.54 2,012.34 1,966.26 1,968.51 2,081.50 2,206.39 2,360.84 2,549.70 2,779.18 3,057.10
Total other current assets as % of Revenue 5.30% 4.29% 4.88% 9.80% 11.72% 10.00% 10.00% 10.00% 10.00% 10.00%
Total Other Current Assets 98.22 86.25 96 193 244.01 220.64 236.08 254.97 277.92 305.71
Total Current Assets 643.99 589.23 528.22 644.86 802.33 828.39 897.58 984.05 1,091.37 1,211.95

Trade Payables Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Total purchases 739.86 787.09 796.48 739.68 747.90 807.54 864.07 933.19 1,017.18 1,118.90
Trade Payables 334.2 337.92 0 0 435.92
Payables deferral period 165 157 0 0 213 150 150 150 150 150
Trade Payables 334.2 337.92 0 0 435.92 331.87 355.10 383.50 418.02 459.82

Other Current Liabilities Forecast FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Total other current liabilities 272.17 320.49 779.67 954.44 455.77
Total Expenses 1,470.36 1,580.34 1,617.13 1,468.22 1,516.30 1,685.68 1,803.68 1,947.97 2,123.29 2,335.62
Total other current liabilities as a % of total expenses
18.51% 20.28% 48.21% 65.01% 30.06% 25.00% 25.00% 25.00% 25.00% 25.00%
Total other current liabilities 272.17 320.49 779.67 954.44 455.77 421.42 450.92 486.99 530.82 583.91

Total Current Liabilities 606.37 658.41 779.67 954.44 891.69 753.29 806.02 870.50 948.84 1043.73
FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E
Net Working Capital 37.62 -69.18 -251.45 -309.58 -89.36 75.11 91.57 113.55 142.53 168.22
Incremental Working Capital -106.80 -182.27 -58.13 220.22 164.47 16.46 21.98 28.98 25.69
Incremental working capital as % of Revenue -5.77% -9.06% -2.96% 11.19% 7.90% 0.75% 0.93% 1.14% 0.92%
FCFF 318.05 555.12 779.83 471.77 380.56 316.64 513.60 543.97 579.34 632.37

4.3. Intrinsic Value Calculation: -

Revenue growth is calculated by adding Indian inflation to global GDP. As per the annual
report Pfizer will keep its EBITDA margin 35% for next 5 years.

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 Terminal Value Assumptions
Revenue growth (%) 6.41%
EBITDA margin (%) 35.00%
Working capital as a % of sales 0.00%
Perpetuity CAPEX (Rs mn) 107.0
Tax (%) 25.17%
WACC 10.11%
2H years 5
Valuation of Pfizer Limited Using Discounted Cash Flow Model
Year / (Rs Cr) 1 2 3 4 5 6
FY 19-20E FY 20-21E FY 21-22E FY 22-23E FY 23-24E Terminal Value
Revenue 2,206.4 2,360.8 2,549.7 2,779.2 3,057.1 3,253.1
EBITDA 704.8 759.7 824.5 901.0 991.1 1,138.6
Depreciation and
77.2 82.6 89.2 97.3 107.0 107.0
amortisation
EBIT 627.6 677.1 735.3 803.7 884.1 1,031.6
Tax 150.6 162.5 176.5 192.9 212.2 259.6
EBIT*(1-t) 477.0 514.6 558.8 610.8 671.9 771.9
Add: Dep 77.2 82.6 89.2 97.3 107.0 107.0
Less: Capex 73.1 67.2 82.1 99.8 120.8 107.0
Add/ Less:
(Increase)/decrease in 164.5 16.5 22.0 29.0 25.7 26.0
Net Working Capital
FCFF 316.6 513.6 544.0 579.3 632.4 745.9
PV – Factor 0.91 0.82 0.75 0.68 0.62
PV – Explicit period 287.6 423.6 407.5 394.1 390.7
Terminal Value 22,807.8
Terminal value of perpetuity 20160.12 Present value for explicit
1,903.5
period
Terminal value if it were not a perpetuity 700.99 Present value of
14,091.2
terminal period
Terminal value of transition period 2647.66 Enterprise value 15,994.7
Total terminal value 22807.79 Less: Debt -
Add: Cash and Cash eq. 1,914.3
Equity Value as at March
17,909.0
31, 2017
Number of equity shares 5
Equity value per share
3,914.74
(₹) as at March 31, 2019
Market Price per share as
3265.85
on March 31, 2019 (₹)
Market Price per share as
4220.55
on January 2, 2020 (₹)
So the equity value per share of Pfizer Limited is Rs. 3914.74 on 31 March 2019 but the
market price on that day was Rs. 3265.85 so the firm is undervalued in the stock
market.

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 4.4. Sensitivity Analysis:
So as we increase the growth by 1% the value of firm increases by 17 % and if we
increase the cost of capital by 1 % value of firm will decrease by 15%

Sensitivity Analysis
3,914.74 5.0% 6.0% 7.0% 8.0% 9.0%
10.0% 3162.39 3712.33 4628.68 6461.04 11957.50
11.0% 2677.36 3023.73 3543.12 4408.56 6139.15
12.0% 2331.96 2565.76 2892.96 3383.60 4201.14

13.0% 2073.79 2239.54 2460.44 2769.58 3233.15

14.0% 1873.73 1995.61 2152.24 2360.99 2653.13

5. Relative Valuation

5.1. Comparable Company Analysis: -

Comparable Company Analysis
Summary as on 31st March 2019 (Rs. Cr.) EV/Revenue EV/EBITDA P/E
Companies Market cap Net debt Enterprise value (EV) FY'19 FY'20E FY'21E FY'19 FY'20E FY'21E FY'19 FY'20E FY'21E
Sun Pharma Industries 114074.72 -1,332.95 112741.77 3.88 3.43 3.11 17.87 15.72 13.65 42.83 25.29 21.61
Lupin 32799.46 5,124.87 37924.33 2.27 2.16 1.99 13.16 12.25 10.37 54.09 33.56 21.38
Dr Reddy Laboratories 45105.52 936.80 46042.32 2.99 2.72 2.51 13.47 12.27 11.19 24.05 18.61 19.14
Cipla 42347.59 1,571.63 43919.22 2.68 2.55 2.32 14.18 12.57 11.49 27.81 23.89 20.45
Glaxosmith consumer healthcare 30480.04 -4,097.34 26382.70 5.52 5.04 4.57 23.12 20.94 18.61 30.97 26.35 23.45
Mean 3.47 3.18 2.90 16.36 14.75 13.06 35.95 25.54 21.21
Median 2.99 2.72 2.51 14.18 12.57 11.49 30.97 25.29 21.38

5.2. Valuation Summary: -

Valuation Matrix (Rs. Cr.)

Multiples EV/Sales EV/EBITDA P/E
Comparable Company based valuation
Median Multiple 2.72 12.57 25.29
Fair Enterprise Value (Equity value in case of P/E) 5994 8857 12063
Subtract: Net Debt 0 0 -
Fair equity value 5994 8857 12063

Adjusted equity value 5994 8857 12063

Financials
Min Max
Pfizer Ltd. (Rs. Cr) FY20E
Range (Rs.) 1310 2637
Revenue 2206
EBITDA 705
PAT 477

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