GlaxoSmithKline Consumer - 1QCY13 Results Update - Motilal Oswal

- GSK Consumer's (SKB) 1QCY13 performance was mixed, with sales and EBITDA at 2% and 15% below estimates respectively. But a strong 42% growth in other income resulted in 19% PAT growth, in line with our estimate.

- Sales grew 16% to INR9.4b (our est INR9.6b), led by 8% (est 10.5%) volume growth in MFD.

- Horlicks grew by 18% led by 7% growth in volumes, while Boost reported 25% growth led by 10% growth in volumes.

- Gross margin expanded 270bp YoY to 62.1% due to price hikes, correction in SMP prices and mix improvement.

- However, EBITDA margin declined 170bp YoY to 18.2% (our est 20%) due to a sharp increase in ad spends (up 46% YoY, impacting by 350bp) and employee costs (up 140bp). EBITDA grew 6% YoY to INR1.7b (our est INR2b).

- Higher other income (up 42%) and lower depreciation costs (down 10%) resulted in 16% PBT growth to INR2.28b (our est INR2.33b). PAT growth of 19%, ahead of PBT growth, was on account of 140bp YoY contraction in tax rate to 31.4%.

- We remain positive on the core MFD portfolio, given the favorable long term drivers of low penetration and per capita consumption, SKB's strong brand equity, leadership position and distribution reach. Company's focused efforts to diversify geographical revenue mix coupled with distribution expansion can aid volume growth in the medium term. Sustained market leadership in a category, which is finding broader consumer acceptance, augurs well from a long term growth perspective.

- The stock trades at 33.4x CY13E and 28.2x CY14E EPS, we believe valuations leave little room for an upside. Maintain Neutral with a target price of INR4,000.

Source : Equity Bulls

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