Angel Broking recommends Neutral on GlaxoSmithKline Pharma - 1QCY2014 Result Update

GlaxoSmithKline Pharma (Glaxo) reported its 1QCY2014 results, which are below estimates on the top-line, bottom line and OPM fronts. The new Drug Prices Control Order (DPCO) continued to impact the overall sales and profitability. Overall, the company posted net sales and adjusted net profit of Rs. 600cr and Rs. 97cr, registering a yoy de-growth of 5.1% and 43.2% respectively. We continue to maintain our Neutral view on the stock.

Results below expectations: For 1QCY2014, Glaxo reported a 5.1% yoy degrowth in its net sales to Rs. 600cr, lower than our estimate of Rs. 650cr. The new DPCO continued to impact the company's overall sales and profitability. The company's gross margin came in at 50.9% (56.8% in 1QCY2013), lower than our estimate of 52.6%. This, along with lower-than-expected sales, led the OPM to come in at 16.3%, which is lower than 24.2% for 1QCY2013 and also lower than our estimate of 19.8%. During the quarter, Glaxo reported a dip of 43.2% yoy in its adjusted net profit to Rs. 97cr, lower than our expectation of Rs. 138cr.

Outlook and valuation: Glaxo has a strong balance sheet with cash of ~Rs. 2,000cr, which could be used for future acquisitions or higher dividend payouts. On the operational front, we expect Glaxo's net sales to post a CAGR of 6.0% to Rs. 2,853cr and EPS to register a mere CAGR of 0.4% to Rs. 59.4 over CY2013-15E. At current levels, the stock is trading at 44.9x and 41.2x CY2014E and CY2015E earnings, respectively. We remain Neutral on the stock.

Shares of GLAXOSMITHKLINE PHARMACEUTICALS LTD. was last trading in BSE at Rs.2458.7 as compared to the previous close of Rs. 2460.3. The total number of shares traded during the day was 1819 in over 491 trades.

The stock hit an intraday high of Rs. 2481 and intraday low of 2440. The net turnover during the day was Rs. 4465659.

Source : Equity Bulls

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