Provides Solace To Investors - Wyeth

Many times we have mentioned that dividends never lie and hence it is good to go for the companies paying higher and consistent dividend. No investor will look back if the company is paying consistent dividend since last 18 years and the yield stands as high as 7.10 per cent (Rs 30 per share). There is a high probability that the company will announce dividend for the next year also as there are no expansion plans and is generating good cash from its business. At a time when there is liquidity crunch, the company with Rs 230 crore of liquid cash, is comfortably placed. In addition, it has a negligible debt of Rs 2.50 crore. So there is no net interest outgo.

Dividend payment should not be the only criterion for selecting any company. Here also Wyeth scores a brownie point. Wyeth has showed good growth in H1FY09. It posted a topline of Rs 200.84 crore and a bottomline of Rs 60.38 crore as compared to Rs 174.45 crore and Rs 51.78 crore respectively for H1FY08. Apart from this the tax outgo for H1FY09 has also increased and even the net profit margins have also improved. On the valuation front CMP of Rs 410 discounts its FY09E earning by 10x (expected EPS of Rs 40). In addition the current EV/EBITDA of 5.76x seems to be placed better.

Wyeth is a pharmaceutical company and has its presence in therapeutic segment like anti-infectives, oral contraceptives, hormone replacement therapy, vaccines and antacids. Wyeth is a market leader in the oral contraceptives, folic acid and depilatory cream segments. It also owns consumer health business with products like Anacin and Anne French.

Regarding the products, over the past several years the company has launched very strong brands like Wysolone (steroid), Wymox (antibiotic), Mucaine (antacid), HibTiter (hib meningitis), Folvite (vitamin) etc. which continue to be leaders in their respective segments.

Wyeth operates in highly profitable niche segment and would also be the  prime beneficiary of the parent company’s R&D focus on the segment into which the Indian subsidiary operates. With the current market meltdown we have seen some MNC parent companies going for a buy back of shares. We cannot rule out the possibility of buy back in Wyeth also as promoters are holding 57.15 per cent stake in the company. There is one concern about the company as it has disputed liability of Rs 63 crore and this may create problems in the future, even though the company is contesting since 1994.

Looking at all these factors we recommend the investors to buy the scrip at the current levels of Rs 418 with a target price of Rs 485-490 in next one year.