Glaxo Smithkline Consumer - FMCG: Quarterly Result Update - PhillipCapital

GSK Consumer reported healthy set of numbers for Q2FY13 even as revenue growth was impacted by slowdown in Canteen Stores Department (CSD) sales. The key takeaways of the results and conference call are as follows:

Domestic Volume growth at 6% YoY; Export business sluggish: The domestic volume growth was slower than our expectations on account of slowdown in Canteen Stores Department (CSD) adjusted for which the domestic volume growth was 7 YoY. Boost reported strong volume growth at 8.5% YoY while the volume growth for Horlicks brand was slower than expectations at 4.5%. Domestic revenue growth for the quarter was 16% YoY implying a price growth of 10% YoY. The management indicated that the category growth is robust at 19% YoY on account of sharp growth of premium products at 33% YoY. The export business which contributes 5% to the topline grew by mere 3% YoY on account of sluggishness in exports to Srilanka.

New business initiatives: The Company has launched high fibre digestive and diabetes biscuit under the Horlicks brand in South India. The products have achieved a market share of 8% in the first quarter of launch. The management also indicated that the company has a market share of 11% in Horlicks oats in South India. The management also indicated that they are planning to launch new products in the super premium range in the Malted Food Drinks category which is seeing sharp market share ascendance.

Gross margins continue to expand; Sharp EBIDTA growth: The gross profit margin expanded by 40bps even as input cost inflation continued to remain at elevated levels. EBIDTA for the quarter grew by 19% YoY. Advertising expenses increased by 16% YoY to 16.7% of sales.

PAT growth sharp at 25% YoY: Other operating income grew by 23% YoY which aided earnings growth at 25% YoY.

Maintain estimates; upgrade price target-Maintain Buy: We have maintained our FY13E and FY14E earnings. We have upgraded our PER multiple to 27x on FY14E earnings on account of consistent earnings growth and passage of time. We value the company at Rs 3430 implying an upside of 9% from the current levels. We maintain our Buy recommendation on the stock.

Source : Equity Bulls

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