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GlaxosmithKline Consumer (SKB)
Consumer products
Impresses, yet again. 4Q results beat estimates line by line. Dividend payout of 70%
for CY2010 (including special dividend of Rs25) is a key positive. The results were a
demonstration of (1) continuing penetration led growth, (2) new-found confidence in
implementing price increases, (3) no meaningful competition in MFD (malted food
drink) and (4) efforts to diversify its product portfolio (within MFD and noodles) are
yielding results. Key monitorable are (1) likely announcement of CY2011-14E targets,
(2) repositioning of Horlicks as a health food and not just a health drink and (2)
continuing success of Foodles. Maintain ADD, GSK remains one of our preferred picks.
Solid quarter, adspends phasing benefit boosts PAT
GSK reported net sales of Rs5,078 mn, (+21%, KIE Rs5,034 mn), EBITDA of Rs584 mn (+61%, KIE
Rs473 mn) and PAT of Rs534 mn (+58%, KIE Rs385 mn).
Sales growth of 21% was likely led by pricing growth of 7% (5% price hike taken in January
2010 and another 5% in November 2010). Horlicks likely had volume growth of ~12%. Foodles
likely contributed 2% to incremental growth, in our view.
Gross margin declined 130 bps (likely higher milk prices) but EBITDA margin expanded 280 bps
due to lower adspends (initial launch expenses of Foodles in base). PAT margin improved 250
bps to 10.5% driven by higher financial income.
Key monitorable, (1) repositioning of Horlicks, (2) continuing success of Foodles
Repositioning of Horlicks. We like the strategy of repositioning of Horlicks as a food and
beverage brand from a health drinks brand. Horlicks biscuits are likely performing well with its
extension to creams segment. Revamping the image and positioning of Horlicks will likely aid
sales and consumer acceptance of the new extensions, some of which are showing initial signs
of fatigue. Nutribar and Chill Dood likely require a change in marketing mix, in our view.
Foodles performs well in an increasingly competitive market. The company has launched
Foodles with a differentiated positioning and has gained market share of ~6% in south and
east India within a year of launch. While the performance seems impressive so far, we will
closely watch for incremental consumer acceptance and repeat purchases as the market is
getting increasingly fragmented—after HUL’s Knorr Soupy Noodles, ITC is the latest entrant in
this segment with Sunfeast Yippee which is currently being scaled up nationally. Channel
sources indicate that GSK is focusing on communicating the health benefits of Foodles to create
a sustainable product differentiator.
GSK remains one of our preferred picks
We maintain our ADD rating and positive bias on GSK as we forecast 18% CAGR EPS
growth in CY2010-12E. Maintain estimates and TP of Rs2,400. Our EPS estimates are Rs84.1
and Rs99.5 for CY2011E and CY2012E, respectively. GSK remains one of our preferred picks
in the sector apart from Asian Paints, Dabur and ITC. Key risk to our ADD rating is input cost
inflation or potential increase in Cenvat rates not neutralized by price increases.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GlaxosmithKline Consumer (SKB)
Consumer products
Impresses, yet again. 4Q results beat estimates line by line. Dividend payout of 70%
for CY2010 (including special dividend of Rs25) is a key positive. The results were a
demonstration of (1) continuing penetration led growth, (2) new-found confidence in
implementing price increases, (3) no meaningful competition in MFD (malted food
drink) and (4) efforts to diversify its product portfolio (within MFD and noodles) are
yielding results. Key monitorable are (1) likely announcement of CY2011-14E targets,
(2) repositioning of Horlicks as a health food and not just a health drink and (2)
continuing success of Foodles. Maintain ADD, GSK remains one of our preferred picks.
Solid quarter, adspends phasing benefit boosts PAT
GSK reported net sales of Rs5,078 mn, (+21%, KIE Rs5,034 mn), EBITDA of Rs584 mn (+61%, KIE
Rs473 mn) and PAT of Rs534 mn (+58%, KIE Rs385 mn).
Sales growth of 21% was likely led by pricing growth of 7% (5% price hike taken in January
2010 and another 5% in November 2010). Horlicks likely had volume growth of ~12%. Foodles
likely contributed 2% to incremental growth, in our view.
Gross margin declined 130 bps (likely higher milk prices) but EBITDA margin expanded 280 bps
due to lower adspends (initial launch expenses of Foodles in base). PAT margin improved 250
bps to 10.5% driven by higher financial income.
Key monitorable, (1) repositioning of Horlicks, (2) continuing success of Foodles
Repositioning of Horlicks. We like the strategy of repositioning of Horlicks as a food and
beverage brand from a health drinks brand. Horlicks biscuits are likely performing well with its
extension to creams segment. Revamping the image and positioning of Horlicks will likely aid
sales and consumer acceptance of the new extensions, some of which are showing initial signs
of fatigue. Nutribar and Chill Dood likely require a change in marketing mix, in our view.
Foodles performs well in an increasingly competitive market. The company has launched
Foodles with a differentiated positioning and has gained market share of ~6% in south and
east India within a year of launch. While the performance seems impressive so far, we will
closely watch for incremental consumer acceptance and repeat purchases as the market is
getting increasingly fragmented—after HUL’s Knorr Soupy Noodles, ITC is the latest entrant in
this segment with Sunfeast Yippee which is currently being scaled up nationally. Channel
sources indicate that GSK is focusing on communicating the health benefits of Foodles to create
a sustainable product differentiator.
GSK remains one of our preferred picks
We maintain our ADD rating and positive bias on GSK as we forecast 18% CAGR EPS
growth in CY2010-12E. Maintain estimates and TP of Rs2,400. Our EPS estimates are Rs84.1
and Rs99.5 for CY2011E and CY2012E, respectively. GSK remains one of our preferred picks
in the sector apart from Asian Paints, Dabur and ITC. Key risk to our ADD rating is input cost
inflation or potential increase in Cenvat rates not neutralized by price increases.
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