GlaxoSmithkline Consumer Healthcare (Q4 CY13)

India Infoline News Service | Mumbai |

GSK Consumer matched our revenue expectations by recording 18.3% yoy growth during Q4 CY13 at Rs8.4bn driven by healthy growth in the HFD portfolio and strong growth in exports.

CMP Rs4,380, Target Rs4,627, Upside 5.6%
  • GSK Consumer matched our revenue expectations by recording 18.3% yoy growth during Q4 CY13 at Rs8.4bn driven by healthy growth in the HFD portfolio and strong growth in exports. The growth was driven by volume growth of ~13% yoy and price growth of ~5%. Domestic business reported 11% underlying volume growth (10% in Q3 CY13). Export growth remained strong at 36% yoy.

  • HFD portfolio reported 17% yoy growth driven by strong growth in its key brands Horlicks and Boost. Packaged foods segment recorded healthy 29% yoy revenue growth during the quarter. The biscuits segment witnessed healthy revenue growth. With the expansion of its product range in Oats segment, GSK now ranks second in Oats category and enjoys ~ 14%+ market share. The management plans to focus on launching healthy variants (multigrain etc) for its noodles portfolio as they have better margins and will help this small-scale noodles business to remain profitable. 

  • Operating margins declined marginally by 20bps to 10.5% due to sharp 260bps increase in raw material cost (sharp rise in milk & milk powder prices) and 90bps increase in adspend. A 210bps decline in overhead cost restricted further margin erosion.

Cost Analysis
As a % of net sales
Q4 CY13
Q4 CY12
bps yoy
Q3 CY13
bps qoq
Material cost
36.6
34.0
260
37.1
(54)
Personnel cost
9.9
11.1
(121)
9.6
21
Advertising cost
19.6
18.7
93
16.8
284
Other overheads
27.0
29.1
(210)
21.1
593
Total costs
93.0
92.8
22
84.6
845
Source: Company, India Infoline Research
  • Net profit for the quarter increased by 14.5% yoy to Rs797mn – below our expectations of Rs879mn, mainly due slower growth in business auxiliary income and higher tax outgo. Business auxiliary income (includes business income and cross-charge received on account of OTC products sold on behalf of GlaxoSmithKline Pharmaceuticals Ltd) grew by mere 17.5% yoy to Rs299mn (Q3 CY13 - Rs421mn). The management has guided business auxiliary income to grow at 20% on steady state basis. Non-operating income increased by ~27% yoy to Rs446mn driven by higher interest income and export incentives.


  • We have cut down our CY14 and CY15 estimates marginally to factor in input cost inflation and overall slowdown in the market.

Changes in estimates
(Rs mn)
CY14E
CY15E
 
New
Old
Change (%)
New
Old
Change (%)
Net sales
41,782
41,450
0.8
48,416
47,508
1.9
EBITDA
7,623
7,905
(3.6)
8,953
9,291
(3.6)
OPM (%)
18
19
(0.8)
18
20
(1.1)
PAT
6,081
6,131
(0.8)
7,224
7,298
(1.0)
EPS
145
146
(0.8)
172
174
(1.0)
Source: Company, India Infoline Research
  • With zero debt on its books and operating cash flows of ~Rs3-7bn 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. The management has guided ~15% p.a. sustainable growth for the malted food category driven by 7-8% volume and 6-7% value growth. We expect GSK to register earnings CAGR of 18.3% over CY12-15. At the current market price of Rs4,380, the stock is trading at 25.5x CY15E EPS of Rs171.7. We maintain market performer rating on the stock, with a revised 9-month target price of Rs4,627 (earlier Rs4,957).

Results table
(Rs m)
Q4 CY13
Q4 CY12
% yoy
Q3 CY13
% qoq
Net sales
8,391
7,091
18.3
9,719
(13.7)
Material cost
(3,067)
(2,408)
BSE 6,198.60 33.95 (0.55%)
NSE 6,217.75 79.90 (1.30%)

***Note: This is a NSE Chart

 

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