GSK Consumer Healthcare - Q1CY12 Result update - Centrum

Volume growth disappoints

GSKCH posted 15% topline growth on the back of 7% volume growth as the company did not receive orders from CSD in the months of Feb and Mar which impacted 2.5% volume growth. Price hikes in the month of Jan 2012 helped in achieving 8% value growth during the quarter. Strong growth in new categories coupled with low A&P spend helped in 19.3% PAT growth. Maintain BUY.

- Volume growth under pressure: GSK Consumer Healthcare posted 15% topline growth to Rs8364mn in Q1CY12 on the back of 7% volume growth and 8% value growth. Volume growth was subdued on the back of 30% decline in revenues from CSD as it did not place orders in the month of Feb and Mar which contributes ~8% to company sales. Horlicks had 9.4% volume growth and Boost 2.1% during the quarter.

- Gross margins under pressure: Gross margins for the company declined by 216bps on the back of higher utilization of inventory as the company had to shut down the plant for maintenance while prices for commodity products such as barley and SMP were up by 17% and 20% respectively on YoY basis. Operating margins for the company however was down by mere 24bps at 22.1%. A&P was at 13% to sales and the lowest in the past 3 years; however, the company maintained that for the full year they would invest in new brands and A&P at ~15% of sales.

- To continue to invest in new categories: Non-MFD portfolio contributed 7% to sales in the current quarter compared to 6.2% in Q1CY11. Horlicks biscuits grew by 31% in the quarter and in the oats category the company had a 12% market share in South India and was the third largest player. Foodles operations continue to be at the hold stage on supply chain issues.

- Investment in new capacities planned: The Company has planed for capex of Rs2.5bn in CY12 and Rs1.5bn in CY13 in the existing facility wherein one line will be operational from Q3CY12 and the remaining from June 2013. The management also maintained that key volume growth was from North and West India where the company is investing heavily to gain market share and increase sales as it is heavily dependent on South and East.

- Cheap valuations, Reiterate Buy: The stock is currently trading at 27.5x and 22.7x CY12E and CY13E EPS of Rs98.2 and 118.5 respectively. We value the stock at 25x FY13E EPS in-line with its 1-year average multiple and re-iterate BUY with a target price of Rs2963 (10% upside).

Source : Equity Bulls

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