GSK Consumer (SELL): In-line results; steady volume growth - Ambit

GSK Consumer reported revenue growth of 17% YoY, volume growth of ~9-10% YoY, EBITDA growth of 12% YoY and PAT growth of 13% YoY in 2QCY13. EBITDA margins contracted by 85bps YoY, despite gross margin expansion of 210bps YoY (due to sharp increases in employee costs and other expenditure). The stock is currently trading at 37.9x CY13 earnings and 31.7x CY14 earnings. Whilst EPS CAGR is likely to remain strong at 18% over CY12-15, we believe the premium valuations are unjustified owing to: (a) moderation in volume growth (due to a weak premium portfolio of milk food drinks, high category penetration in south India and high competitive intensity); (b) risks around capital allocation towards M&As; and (c) limited incremental products that can be added to the auxiliary portfolio. We reiterate our SELL stance with a target price of Rs3,945 (14% downside).

Source : Equity Bulls

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