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GSK Consumer Healthcare - Pressure on volume growth - Centrum
Posted On : 2012-08-03 20:40:24( TIMEZONE : IST )
GSK-CH posted Q2CY12 results broadly in-line with expectations with topline growth at 12.5% YoY on the back of 10% decline in exports and flat CSD sales. Volume growth at the company level was at 3.2% while domestic volume growth was healthy at 7.7% led by Boost. Gross margin expanded by 439bps which helped in boosting operating profit by 17%. PAT was up by 29%YoY. Maintain BUY.
- Q1FY13 results broadly in-line: Sales for the company was in-line with expectation with 12.5% revenue growth at Rs7484mn led by 3.2% volume growth and 9% price growth. Exports declined by 10% on the back of higher base of Q2CY11 where it grew by 58%. Operating profit was up by 17.1% at Rs1394mn on the back of gross margin expansion. Depreciation was low as one of the plants got fully depreciated during the quarter. PAT was up by 29.3% and 4.5% above our estimates at Rs1066mn.
- MFD portfolio growing strong: Domestic MFD portfolio grew by 7.7% in volume and 8% in price on the back of 14% (4% vol) in Horlicks and 22% (11% vol) in Boost sales. The company increased prices by 5.5% in mid-June across products which will help it to mitigate future RM cost pressure. The management has guided for 7-9% volume growth in the near term. It continues to invest in North and West India where it launched chocolate Horlicks by increasing distribution and branding. Horlicks Gold continues to perform well and accounts for 2% of the total sales while sachet sales grew by 40% and formed 4.5% of total sales and drove rural growth.
- Margin expansion: Operating margin for the company expanded by 71bps on the back of 439bps gross margin expansion. Gross margins expanded on the back of lower exports, flat CSD sales, marginal commodity inflation along with cost optimization. RM cost inflation was 6.5% during the quarter with milk power increasing by 10% and malted barley by 8.5%. Though wheat was flat, sugar was up by 4%. We believe these margins are not sustainable in the long run. A&P spend was high on the back of increase in investments for non-MFD products. Employee cost was up by 16% following 11% increment and head count addition.
- Non MFD business gaining traction: Biscuits business grew by 27% during the quarter while Horlicks Oats has been able to garner 11.5% market share in south India and currently is the number 3 player in the market. In noodles, it is focusing on the multigrain category which has higher gross margins and did a turnover of Rs50mn in Q2CY12. In the glucose category the company did zero turnover during the quarter against Rs50mn in Q2CY11. Business auxiliary income grew by 40% to ~Rs250mn driven by GSK Asia products such as Eno, Crocin, Iodex and Sensodyne.
- Estimates increased; Maintain BUY: We have increased our CY12/CY13 estimates by 5.5% and 3.1% respectively on the back of increase in auxiliary income and gross margins expansion. The stock is currently trading at 25.8x and 21.9x CY12E and CY13E respectively. We continue to value the stock at 25x CY14E with our target price of Rs3055 and maintain BUY rating on the stock.
