Accumulate GSK Consumer – 4QCY2010; Target Rs. 2,268- Angel Broking

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GSK Consumer – 4QCY2010 Result Update

Angel Broking maintains an Accumulate on GSK Consumer with a Target Price of Rs. 2,268.



GSK Consumer posted lower-than-estimated performance for the quarter.
Top-line grew 21.4 % yoy to `507.8cr (`418.1cr). On the operating front, the
company recorded a 271bp yoy expansion in margins. Earnings for the
quarter grew by 58.5% yoy to `53.4cr (`33.7cr). We maintain an Accumulate
on the stock.

Steady top-line; margins expand: GSK Consumer registered top-line growth
of 21.4% yoy to `507.8cr (`418.1cr) aided by ~15% volume and ~7% value
growth. On the operating front, the company registered margin expansion by
271bp yoy on account of the 283bp and 271bp yoy decline in advertisement
spend and other expenditure, despite gross margin contraction of 216bp yoy
and 67bp yoy increase in staff cost. Earnings registered a growth of 58.5%
yoy aided by higher other income, flat depreciation and decline in interest.


Outlook and Valuation: Post the 4QCY2010 result we have tweaked our
numbers, while keeping our top-line estimate intact. We continue to like GSK
Consumer due to the sustained volume growth in its core brands, higher
contribution from new product launches and potential higher dividend payout
due to the high cash balance (`950cr as on 4QCY2010). At the CMP of
`2,101, the stock is trading at 20.4x CY2012E EPS of `103.1. We maintain
an Accumulate on the stock, with a revised Target Price of `2,268 (`2,279).



Investment Rationale
􀂄 Core brands on strong footing, new launches hold potential: GSK Consumer
continues to post double-digit growth in its core brands, Horlicks and Boost,
driven by steady volume growth (management has indicated steady volume
growth of ~15%) and ~7% from price hikes. Moreover, new launches
(Lucozade, Horlicks Cream biscuits, Horlicks Foodles) have started gaining
traction. Horlicks Foodles, launched in the North-West markets, has received
encouraging response and already gained ~3% market share (overall India),
while sustaining the 6% market share in the South-East markets.
􀂄 Margins to remain stable, 20% earnings CAGR over CY2010-12E: During
CY2011-12, we expect GSK Consumer’s margins to remain at ~18% despite
lower gross margins, driven largely by higher operating leverage and lower
ad-spend (expected to be maintained at ~15-16% of sales). Hence, we expect
earnings to post robust 20% CAGR driven by steady top-line growth (18% CAGR)
and higher other income (cash balance of over `950cr as at the end of
4QCY2010).
Outlook and Valuation
Post the 4QCY2010 result we have tweaked our numbers, while keeping our top-line
estimate intact. We continue to like GSK Consumer due to the sustained volume
growth in its core brands, higher contribution from new product launches and
potential higher dividend payout due to the high cash balance (`950cr as on
4QCY2010). At the CMP of `2,101, the stock is trading at 20.4x CY2012E EPS of
`103.1. We maintain an Accumulate on the stock, with a revised Target Price of
`2,268 (`2,279).