Report on Glaxo Smithkline Consumer Healthcare by Anand Rathi

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Glaxo SmithKline Consumer Healthcare
Growth momentum intact; maintain Buy


We returned positive from our meeting with GSK-CH
management as regards the company’s earnings prospects. We
expect earnings CAGR of 26% over CY09-12e. We retain our Buy
on the stock and raise our price target to `2,755 from `2,150.

 Revenue growth momentum intact. With its volume growth
momentum intact, the company is likely to report 18% revenue
CAGR over CY09-12e. Also, launch of variants and success of
brand extensions are helping GSK-CH maintain the strong
revenue-growth momentum. Recently introduced small SKUs at
`20 would help drive penetration.

 New products doing well. Most of the new products continue
to do well. The biscuits and noodles business is witnessing
favorable progress, with the company registering revenue growth
of over 25% in 9MCY10. Growth in other products such as
Nutribar, Actibase and Actigrow is also satisfactory.

 Expect margins to be maintained. GSK-CH is seeing no major
increase in raw material prices. With overall inflation in coming
quarters expected to be lower and strong pricing power helping to
pass on any increase in raw material prices, we expect the
company to maintain EBITDA margin of ~17%.

 Valuation and risks. We raise our target price for the stock to
`2,755 from `2,150 earlier. Our target PE at 25x CY12e earnings
is at 50% premium to the 12-month forward Nifty PE. Key risks
are rise in raw material prices and increase in competition.