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GlaxoSmithKline Consumer Healthcare
3QCY10 – Strong performance continues; maintain Buy
Retain Buy. GSK-CH registered a robust 3QCY10, with yoy
growth of 23.7% in revenue and 30.9% in net profit. We reiterate
Buy as we expect the company to record 27% earnings CAGR
over CY09-11e.
Healthy revenue growth. GSK-CH reported 23.7% yoy revenue
growth in 3QCY10. Of this, volume growth accounted for ~17%,
with the remaining coming from price hikes. The company posted
revenue growth of over 15% for the 11th consecutive quarter.
Ad-spend pushes down margin. EBITDA margin was 35bp
lower, largely owing to higher ad-spend, which was mainly due to
the Horlicks re-launch and continuing support for new launches.
Net profit was up 30.9% on account of higher ‘other income’ and
healthy operational performance.
extensions, we expect the company to continue recording strong
revenue and earnings growth. Lower food inflation offers a good
opportunity for improving margins. Based on this and the strong
performance of new products, we expect the company to enjoy
steady growth rate in coming quarters.
Valuation and risk. We value the stock at a target price of
`2,150, based on target PE of 24x CY11e earnings. We expect the
success of the new launches to help erase the ‘single-product’ tag
and expand valuations. Key risk is higher raw material prices.
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