GSK Pharmaceuticals - Analyst call highlights - Sep 28, 2020 - ICICI Securities

GlaxoSmithKline Pharmaceuticals Limited's (GSKP) held a virtual analyst meet to discuss company's performance. We cover the highlights below:

- Company believes its key brands and therapies would continue to grow over the next five years. Company has witnessed that most of its key brands have outpaced their respective industries and gained market share.

- Vaccines remains an important growth area followed by respiratory. It will also invest in therapies like oncology but that would take time to scale up. Vaccine contributes ~23% of revenue and is expected to grow in double digits. It's imported and has lower margin than the company but it would be supported by cost optimisation.

- Company has received approval for Augmentin ES600, Trelegy and Fluarix Tetra and has filed for Shingrix, Rotarix liquid oral vaccine and Nucala liquid pediatric indication to support growth over long term. In the near term it is focusing on Nucala and Menveo.

- Company has witnessed a contraction in the dermatology and anti-infective market as patients defer skin treatment and better hygiene has reduced the acute illness.

- Pandemic caused disruption at the beginning of the lockdown. Company implemented several safety protocols and work from home policy wherever possible. Gradually, ~60% of the workforce was able to achieve ~100% production. Roughly 4,000 employees are working from home. Company witnessed MoM recovery in all therapies and expect to achieve normalcy soon. Company also provided extended credits to its partners (stockists, dealers, etc.) in order to support the system.

- Company initiated several cost rationalisation steps including zero based budgeting, in order to reduce financial burden. Company is considering upskilling and redeployment in required areas for employees instead of rationalisation.

- During the lockdown company remain connected with healthcare professionals (HCPs) digitally. Ground field force quickly adapted to the new environment and digital outreach ensured business continuity. Digital medium would remain an important mode of communication and post normalisation would be an effective tool to increase its reach across the country.

- Export is not an opportunity for the company because there is a disparity between the product basket in India and other markets. Another reason is that the price disparity is too large between geographies.

- Company is considering all viable options for Vemgal plant. Company would continue to out-source some level of manufacturing and believes that they have built a strong relationship with the CMOs over time for financial viability.

- Data readout for the global trials of COVID-19 vaccine is expected by the end of the year or early next year. Currently, it's too soon for a strategy or roadmap to bring the vaccine to India. However, the opportunity remains too large to be dismissed.

Valuations and risks: GSKP's exposure only to domestic formulations, strong balance sheet and strong brand equity augurs well for the company. Recent correction has made valuations fair, hence we upgrade to HOLD from Reduce with a target price of Rs1,539/share based on 40xSep'22E EPS. Key downside risks: addition of key drugs in National List of Essential Medicines (NLEM), product concentration and government intervention. Key upside risks: better than expected performance in key products and launch of COVID-19 vaccine in India.

Shares of GLAXOSMITHKLINE PHARMACEUTICALS LTD. was last trading in BSE at Rs.1578 as compared to the previous close of Rs. 1544.1. The total number of shares traded during the day was 6279 in over 928 trades.

The stock hit an intraday high of Rs. 1589.25 and intraday low of 1530. The net turnover during the day was Rs. 9827984.

Source : Equity Bulls

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