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GlaxoSmithKline Pharma |
In-line results; Maintain Hold |
HOLD
CMP: Rs 2,262 Target Price: Rs 2,020
n Revenue growth of 14% is above our estimate of 12% mainly because of strong growth in the vaccines business
n Operating margins contracted marginally by 100bps to 36.6% due to 191bps increase in raw material cost
n 52% increase in interest income led to APAT growth of 12% to Rs1.6bn
n Maintain our earning estimates of Rs68.2 and Rs77.5 for FY11E and FY12E respectively; Maintain Hold
Revenue growth led by strong growth in the vaccine segment
GSK has reported 14% growth (est. of 12%) in revenue to Rs5.9bn driven by 15%
growth in pharmaceutical formulation business. Higher than expected growth in the
formulation business was due to 34% YoY growth in the vaccine segment growth
(during Q1FY11, revenue growth was lower due to supply constraints in the vaccine
segment). Management has indicated that the availability of vaccine has been improving
gradually. Going ahead, we expect momentum in the business to continue in the coming
quarters. The overall revenues for YTDCY10 have gone up by 14% to Rs16.4bn.
EBITDA margins declined 100bps YoY; gross margins affected by
adverse product mix
Despite higher contribution of high margin vaccine business, EBIDTA margins for the
quarter contracted by 100bps YoY to 36.6% (est. 38.1%). Lower than expected margins
were on account of a) gross margins during the quarter down by 190bps to 63.3% (est.
of 65%) led by adverse product mix and higher raw material cost, and b) 15% YoY
increase in other expenses.
Higher interest income led to APAT growth of 12%
Despite 112bps increase in tax provisioning, APAT registered growth of 12% YoY to
Rs1.6bn driven by a) lower depreciation cost (marginally up 3% YoY), and b) higher
interest income of Rs256mn (up 52% YoY). Though the interest income during the
quarter grew by 52%, other income for the quarter was nil. The APAT for YTDCY10
grew by 15% to Rs4.6bn. The EPS for the YTDCY10 is Rs54.
Outlook and Valuations
GSK’s Q3CY10 numbers are in-line with our expectations. Revenue growth was largely
driven by vaccine segment, where the concerns regarding supply constraints are
receding. The vaccine business is showing signs of recovery and we expect growth
momentum to continue in the coming quarters. Strong operating performance coupled
with higher interest income led to the improvement in profitability for the company this
quarter. We retain our earning estimates of Rs68.2 and Rs77.5 for CY10E and CY11E
respectively and maintain our Hold rating on the stock with a price target of Rs2020 (26x
CY11E). At CMP of Rs2262, the stock is trading at 33x CY10E and 29xCY11E
earnings.
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