Glaxosmithkline Consumer Healthcare - 2QCY2012 Result Update - Angel Broking

For 2QCY2012 Glaxosmithkline Consumer Healthcare Ltd (GSK Consumer) posted an 11.7% yoy growth in its net sales, aided by a ~7% volume growth and ~8% value growth in the domestic business. The company's major brands in the malted food drink (MFD) division - Horlicks and Boost posted volume growth of 4% and 11% respectively. During the quarter, the overall sales growth was affected by a flat growth in the canteen stores division (CSD) and a 10% decline in export sales (due to a higher base effect).

Key highlights of the quarter: GSK Consumer recorded a 360bp yoy expansion in its gross margin to 63.0% due to higher realizations and only a marginal y-o-y increase in input costs. However, the OPM remained flat y-o-y at 15.2% largely on the back of a 247bp yoy increase in other expenses on a low base. During 2QCY2011, the company's other expenses were lower due to 50 days shutdown of a factory for capacity expansion. The earnings for the quarter grew by 29.3% yoy to Rs.107cr (Rs.82cr in 2QCY2011) aided by higher other income (up ~59% yoy), and business auxiliary income (up ~40% yoy).

Outlook and valuation: We expect the company's MFD division to continue to post double digit growth, aided by the company's effort to strengthen its distribution network. At the current market price, the stock is trading at 22.8x CY2013E EPS of Rs.123.8. We continue to remain Neutral on the stock.

Source : Equity Bulls

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