GSK Pharma :In-line quarter, marked by high growth in vaccines: Kotak Sec

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GlaxoSmithkline Pharmaceuticals (GLXO)
Pharmaceuticals
In-line quarter, marked by high growth in vaccines. Sales growth picked up qoq to
14%, slightly lower than our 15% est. EBITDA margin was in line at 37% resulting in
PAT at Rs1.6 bn, in line with our est. We expect 2010E sales growth at 14.3%, implying
17% sales growth in 4Q2010E and expect 15.5% in 2011E. Except for vaccines (launch
pushed to 2011E), Glaxo will meet its guidance with three product launches in 2010.
We roll forward PT to end-2011E to Rs2,000, consisting of (1) business value/share of
Rs1,710 (24X 2011E, 10% premium to 5-year avg. multiple) and (2) cash/share of
Rs290. We maintain REDUCE due to stretched valuations (stock ex cash trading at 28X
2011E).



Sales at Rs5.8 bn, grew 14% yoy, slightly lower than our sales growth estimate of 15%
3Q2010 net sales grew 14% yoy, slightly lower than our sales growth estimate of 15% to reach
Rs5.8 bn. Vaccines, up 34% yoy (10% of sales), was a primary driver of sales growth picking up
qoq to 14% from 9% when vaccines sales dipped due to supply constraints at GSK Plc. Sales
growth was also driven by (1) price controlled products (25% of sales) and (2) priority products
driven by a ramp-up in sales of products launched in the past two years.
PAT before exceptional at Rs1.6 bn, in line with our estimate
PAT before exceptional at Rs1.6 bn was in line with our estimate driven by EBITDA margin at 37%,
in line with our est. and lower than 38% reported in 1H2010. However, (1) gross margin at 63%
was lower than our estimate of 65% due to cost escalation in key raw materials while (2) staff
costs dipped qoq to Rs572 mn versus our estimate of Rs600 mn.
We maintain 2010 sales growth at 14.3%; Glaxo ups EBITDA margin guidance by 100 bps to 36%
We maintain our 2010E sales growth at 14.3%, implying 17% sales growth in 4Q2010E. Despite
reporting EBITDA margin of 38% in 9M2010, we maintain our margin assumption at 36% for
2010E as we expect gross margin to sustain at 63% in 4Q2010, flat qoq and we expect other
expenses, staff costs to increase qoq in 4Q2010E. Glaxo ups its 2010E EBITDA margin guidance by
100 bps to 36% on account of lesser-than-expected growth in other expenses and staff cost.
We maintain REDUCE due to stretched valuations (stock ex cash/share trading at 27X 2011E)
We roll forward PT to end-2011E to Rs2,000—(1) business value/share of Rs1,710 (24X 2011E
earnings). Due to higher adjusted (ex interest income) PAT growth of 14-17% in 2010-11E
compared to historical growth of 7-13%, we value core earnings at 24X, 10% premium to 5-year
historical average of 22X and (2) cash/share of Rs290. We maintain REDUCE due to stretched
valuations (stock ex cash trading at 28X 2011E earnings).