GSK Consumer Healthcare - Q1CY13 Result Update - Strong growth in MFD segment - Centrum

Rating:Neutral
Target Price:Rs3,933
CMP:Rs4,174
Downside:5.8%

GSK Consumer Healthcare's results for Q1CY13 were below our expectations. The company reported 15.6%YoY growth in revenues, 171bps fall in EBIDTA margin and 18.5%YoY growth in net profit. Volume growth in MFD category was healthy at 8% but high A&P and employee expenses muted operating profit growth. PAT was high on the back of 54% growth in business auxiliary income and lower tax rate. On the back of high valuations we maintain our Neutral view on the stock.

- Results marginally below expectations: GSK Consumer posted topline in-line with our expectations at Rs9399mn (up 15.6% YoY). Operating profit was up by mere 5.6%YoY on the back of 171bps drop in margins. High business auxiliary income and high other income boosted PAT to Rs1564mn, up 18.5% YoY (7.4% below expectations).

- MFD portfolio continues to grow at a healthy rate: Volume growth for the MFD portfolio was at 8%YoY while price growth was 10% YoY on the back of 4.6%price hike in January. In Horlicks the growth was at 18% YoY (7% vol growth) while Boost grew faster at 25% (10% vol growth). The new brand ambassador along with new advertisement for Boost aided sales. Premium products offering such as Women Horlicks continue to receive good response from the consumer. The company launched a new product Horlicks ProMind at a premium pricing of Rs220/400gms a pack.

- Margin contracts: During the quarter operating margins of the company contracted by 171bps on the back of 46% increase in A&P spends at 16.9% of sales along with 35% increase in employee expenses. Gross margins expanded by 276bps as commodity basket inflation was mere 4% during the quarter. Management expects commodity inflation to remain at 4% for the year and believes they would continue to invest on growth and deploy savings into A&P going forward. They have guided for employee expenses to grow by 18% for CY13 and other expenditure by 15%.

- Other Highlights: During the quarter packaged foods were up by 24% while exports were up by mere 5% on the back of high inflation impacting demand in Sri Lanka. CSD sales had less than 10% growth. Discontinuation of products such as Glucose, cookies and cream biscuits impacted sales growth. In the noodles category the company will not participate in the mass market segment but planned to maintain its presence in the high margin healthy noodles category going forward.

- Increase in distribution: On the distribution front the company is expected to reach 10,000 villages this year and 50,000 more villages by 2016. This has helped the company increase its share in the low price point products to 5.8% (100% increase in the past 3 years) in total sales predominantly from rural India. Direct reach for the company is currently 8lac outlets.

- Estimates lowered; Maintain Neutral: We have marginally lowered our CY13/CY14 revenues by 1.6% and 1.3% while operating profit has been lowered by 1% and 5.1% respectively on the back of higher A&P spends and other expenditure. PAT has not been changed on the back of high other income and high business auxiliary income. The stock currently trades at 33.4x CY13E EPS of Rs125 and 28.7x CY14E EPS of Rs145.7. We maintain Neutral rating for the scrip with a revised target price of Rs3933 (based on 27x CY14 EPS of Rs145.7) with a downside of 5.8%.

Source : Equity Bulls

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