Glaxo SmithKline Consumer Healthcare - Both brands doing well; Buy - Anand Rathi

Key takeaways

Strong volume growth. GSK Consumer posted healthy, 15.8% yoy, revenue growth. Though gross sales climbed 17%, the Feb'12 Budget's 200-bp exciseduty increase led to net sales growth at 15.8%. Of the revenue growth, volume growth contributed eight %age points, price-led growth the rest. Boost and Horlicks' revenues were boosted respectively 25% and 18% yoy. Packaged food products posted 25% revenue growth but export revenue growth came in at a mere 5% yoy. In Jan'13, the company hiked prices 4%.

Higher ad-spend cuts into margins. On the sharp, 350bps, rise in adspend the EBITDA margin slipped 170bps yoy. The drop in raw-material prices pushed the gross margin 280bps up yoy. One-time accounting changes as well as an increase in the number of sales personnel led to staff cost rising 35%. The effective income-tax rate slid 140bps and led to 18.5% yoy net profit growth.

Launches ahead. In 1QCY13, the company launched Horlicks Promind, a variant focused on igniting cognition in children. The parent has indicated its intention to launch its consumer products such as Lucozade and Ribena in India.

Possibility of higher dividend ahead. After the rise in the promoter stake, from 43.2% to 72.5%, we expect the dividend payout to increase. At present, the company has cash of Rs. 380 a share. It has indicated capex planned for CY14, of Rs. 2.5bn.

Our take. We retain our Buy on the stock, with a price target of Rs. 4,690, at a target PE of 29x CY14e earnings. We expect that a higher dividend-payout ratio, sharp increase in promoter shareholding and a 24% earnings CAGR over CY12-14 would help expand valuation multiples. Risks: Higher raw material prices and intensified competition.

Source : Equity Bulls

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