Glaxo SK Pharma - Rating – Sell; Target Price – Rs2,050 - Centrum

- We expect Glaxo SK Pharma (GSK) to report 4.1%YoY decline but 1.3%QoQ growth in revenues to Rs6.35bn. The lower growth is attributed to the price reduction of several major brands namely: Augmentin, Cetzine and Zantel.

- The traders did not pick up company's products from 15th September to last week of November'13 thereby affecting the sales and profitability of the company.

- We expect the company's EBIDTA margin to decline by 1,110bps YoY to 18.6% due to the increase in imported raw material cost with the depreciation of the rupee, increase in personnel cost and other expenses.

- The company has given VRS to its Thane employees and the Thane plant has been shut down. GSK is likely to sell the Thane land.

- The parent company has announced an open offer to increase its stake from 50.7% to 75.0% in GSK at Rs3,100 per share. The offer will open in February'14.

- We expect the company's net profit to decline by 32.7%YoY to 1.06bn.

- We expect GSK's share price to decline after the open offer.

- Our target price is based on 25xDec'15 EPS of Rs82.0. We maintain Sell rating due to its rich valuations.

Source : Equity Bulls

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