Buy GlaxoSmithKline Consumer Healthcare - Microsec

We rate GSK Consumer Healthcare Ltd a BUY. GlaxoSmithKline Consumer Healthcare Ltd (GSKCH) is an Indian associate of GlaxoSmithKline plc, UK. It is one of the largest players in the Health Food Drinks Industry in India. Its flagship product, Horlicks, is a highly respected brand which is over 100 yrs old in India. It also manufactures Boost, Viva and Maltova and distributes brands like Eno, Crocin and Iodex. It has a distribution network of over 4800 wholesalers and over 700000 retail outlets.

Expansion plan of Enhancing the Capacity to Boost Sales Growth in coming years:

GlaxoSmithKline Consumer Healthcare plans to spend Rs 250 crore in CY12E and Rs 150 crore in CY13E towards expanding its existing capacities. Part of the expansion plan will be completed in Q3 CY12E and the total expansion will be completed by June 2013 at its Sonepat, Haryana plant. This will boost the topline in the coming 3 years time.

Rural Market, a Big Opportunity beacuase of low penetration of Malted Health Food Drinks:

Rural markets have low penetration levels of around 11 per cent in Malted Health Food Drinks category compared with the 40 per cent levels of urban markets. Growing income levels and low awareness present an opportunity to the company to penetrate it higher.

Price Hike Undertaken by the company will keep margin intact for the company:

GSK Consumer has undertaken price hike in Horlicks and Boost (i.e. from INR162 to INR171/500g pack) at the end of July 2012 which will help it in keeping its margin intact and protect it against the rising raw- material prices. GSK Consumer has pricing power for its products as it is evident from its stable margin in the range of 18-19% in last 5 Yrs.

Volume Growth of 8-9% to be back on track by the end of CY12E:

With the introduction of new range of products like Horlicks Gold, Women Horlicks, Junior Horlicks and aggressive advertisment compaign in media, we expect the volume growth of 8-9% to be back on track by the end of CY12E. As it is said in cricket that "Form is temporary, class is permanent", the same is applied to the volume growth of GSK Consumer which we believe will bounce back and sustain for long term in india once the form returns.

Valuation

At the CMP of INR2977 the stock discounts its CY12E EPS of INR102.3 by 29.1x and its CY13E EPS of INR125.6 by 23.7x. With Established Brand like Horlicks, Boost, Maltova and Viva, Strong ROE, Stable EBITDA Margin and Focus on Health & Nutrients, the prospect of the company appears to be good for long term. We assign a P/E multiple of 29x to its CY13E EPS of INR125.6 to arrive at the target price of INR3642 for the stock.

Source : Equity Bulls

Keywords