GSK Pharma - Geared up for New Drug Policy - Consortium

GSK Pharma is in good shape to tackle any adverse effect of the new drug pricing policy, which is likely to be finalised in the next two months. GSK has done well for 4QCY12 with revenue growth of 16% YoY and for CY12 with revenue growth of 11.2%. The company has been able to deliver a good performance in CY12 despite the current slowdown in the domestic market due to their strong brand positioning and aggressive strategy of launching new products and expanding portfolio across focus areas.

Any hit to earnings on account of the new drug pricing policy would be temporary and would be compensated/recovered through volume gains in market share (from drugs under NLEM list), price increases in non-NLEM drugs and new product launches. Existing drugs under DPCO which accounts for nearly 23% of revenues would also come out of price control after a year and the company would be allowed to take WPI linked price increases for these drugs viz. Vitamins/Steroids/Anti-ulcerant.

At the current market price of Rs 2,100, GSK Pharma trades at 23x CY13E EPS of Rs 89.3 (normalised earnings, pre-NLEM policy impact) and 21x CY14E EPS of Rs 101, respectively. Valuations continue to remain at a premium for GSK Pharma as compared to other domestic companies (11% to Sun), but overall premium has come down since past one year (as stock price has been flat/rangebound owing to concerns over drug policy). Another key catalyst for the stock (also for investors) would be any surprise move to raise parent stake in GSK Pharma (current stake is 51%), similar to what happened in case of GSK Consumer (open offer was at 26% premium). Given this background, we continue to remain positive on GSK Pharma and maintain Buy rating.

Source : Equity Bulls

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