Source: Company, India Infoline Research
Net profit for the quarter registered 19.3% yoy increase at Rs1.3bn – in line with our estimates partly fuelled by higher other income. Other income for the quarter (includes business income and cross-charge received on account of OTC products sold on behalf of GlaxoSmithKline Pharmaceuticals Ltd) was higher at Rs479mn against Rs340mn in Q1 CY11.
With zero debt on its books and operating cash flows of ~Rs3-4bn per annum, GSK is a cash-rich company. Low penetration levels in the core Malted Food Drinks category will provide surplus headroom for growth for GSK. GSK has increased its direct distribution reach to 700,000 outlets from 600,000 last year. Given the high volume growth visibility, the management plans to incur Rs2.5bn capex in CY12 and Rs1.5bn in CY13 in its new facility (first line likely to be operational from Q3 CY12 in Sonepat and the entire capacity should be completed by June 2013). We expect GSK to register earnings CAGR of 18.7% over CY11-13. The management’s confidence of sustaining volume growth and margins reaffirms our view. At the current market price of Rs2,620, the stock is trading at 21x CY13E EPS of Rs124.8. We maintain BUY, with a 9-month price target of Rs3,119 (earlier Rs2,912).