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Research
Glaxo Smithkline Pharma - Slower growth due to high base - Centrum
Posted On : 2012-05-08 09:59:53( TIMEZONE : IST )
Buy
Target Price: Rs2,479
CMP: Rs2,130
Upside: 16.4%
Glaxo SK Pharma (GSK) results were better than our expectations due to better than expected margin and higher other income. GSK reported 3%YoY revenue growth for Q1CY12. The company's pharma business grew by 7%YoY against the industry growth of 15%. However, its EBIDTA margin declined by 350bps YoY from 35.7% to 32.2% due to sharp increase in material cost. The company's other income grew by 121%YoY from Rs331mn to Rs733mn due to higher treasury income. GSK's net profit before EO items was flat at Rs1.86bn. Net profit after EO items grew from Rs5mn to Rs1,229mn. The company's top 10 brands contribute ~45% of its revenues. We have retained Buy rating for the scrip with a target price of Rs2,479 (based on 24x CY13E EPS of Rs103.3).
- Revenue growth affected by higher base: During the quarter, total revenues grew by 3%YoY from Rs6.10bn to Rs6.30bn. GSK's pharma business grew by 7% against the industry growth of 15%YoY due to higher base.
- Margin under pressure: GSK reported 350bps drop in EBIDTA margin from 35.7% to 32.2% due to sharp increase in imported material cost due to the depreciation of rupee. However, the company's EBIDTA margin has shown improvement of 70bps on QoQ basis from 31.5% to 32.2%.
- Higher treasury income: GSK's other income was up from Rs331mn to Rs733mn due to higher treasury income. The cash per share was Rs254 at the end of Dec'11. The company's net profit before EO items was flat at Rs1.86bn. Net profit after EO items (Rs628mn from rationalisation of Thane mfg. facility) enhanced from Rs5mn to Rs1,299mn.
- New products to drive growth: During CY11, GSK introduced the following new products: Votrient (anti-cancer), Synflorix (pneumonia vaccine) and Revolade (platelet enhancer). These patented products were introduced at lower than the global prices and are likely to drive future growth.
- Other developments: GSK's vaccine business grew by 58%YoY and contributed ~11% to the revenues in CY11. The company has introduced Synflorix-vaccine for treating pneumonia in children in Q4CY11. Synflorix has garnered 36% MS in its category. The vaccine is priced at Rs2,000 per dose against Rs3,800 per dose of Prevenar 13 of Wyeth.
- Attractive valuations, Reiterate Buy: We expect GSK to report improved performance due to the launch of new products and good growth of existing products. We have revised the EPS estimates downwards by 1% for CY12 and 2% for CY13. At the CMP of Rs2130, the stock trades at 24.3x CY12E EPS of Rs87.6 and 20.6x CY13E EPS of Rs103.3. We retain Buy rating for the scrip with a target price of Rs2479 (based on 24x CY13 earnings).