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GSK India
4Q miss; Risk-reward unattractive
„4Q results disappoint; Retain U/P on expensive valuations
GSK’s 4Q profits at Rs1.2bn grew by 15% YoY (down 23% QoQ) driven by higher
other income, still 15% below BofAMLe. Topline growth of 10.4% YoY (against
~16% industry average) remained a concern, while EBITDA margins declined
133bps YoY. Sales at Rs4.9bn was unexciting, however, weak margins led to
mere 5% YoY EBITDA growth (at Rs1.3bn). We revise forecasts noting 4Q miss,
but raise PO to Rs2030 (at 22x P/E) on roll-over to CY12E EPS.
Topline growth still behind industry average
GSK’s weak topline growth of 10.4% was well behind industry average of 14-16%.
While GSK maintained its market share, we believe 1/4th of growth (~3%) was
attributed to vaccines portfolio (12% of sales). Growth for the rest of portfolio
could be below 8%, given 75%+ concentration in acute therapy segments, with
26% of total portfolio falling under price control (DPCO).
Modest organic growth outlook may face hiccups
Our forecast of 13% revenue CAGR over CY10-12E is ahead of mgmt guidance
of 12%, driven by new launches and power brands. Recent new launches
(including in-licensed products) and strengthening of CVS and derma portfolio
should provide medium term growth drivers. However, we believe patented
products from the parent’s (GSK Plc) stable to account for less than 10% of sales
while risk from a generic competition may dampen growth plans.
Premium valuation factors strong cash position of Rs200/sh
GSK is trading at 28x CY11E & 24x CY12E EPS, implying steep 20-25% premium
to large cap pharma peers & at upper-end of its historical P/E bands. However,
given modest earnings growth of 16% & limited upside triggers, we find current
valuations leave little room for error. Strong cash position of Rs200/sh (Rs17bn)
may be utilized for prospective acquisitions to strengthen existing portfolio, raising
expectations. Reiterate Underperform with PO of Rs2030/sh.
Price objective basis & risk
GSK India (GXOLF)
Our PO for GSK is Rs2030 which is based on 22x CY12E EPS, at 10% premium
to the large cap Indian pharmaceutical peers and at upper end of its historical P/E
bands. We believe a premium valuation is justified given its defensive nature and
strong balance sheet. However, current valuations are at a significant premium to
sector and to its historical averages, which are not justified given earnings growth
of 16pc. The company's 16pc EPS CAGR (CY10-12E) is lower than the sector's
24pc+ earnings growth and we find incremental growth drivers missing. Further,
overhang on DPCO coverage on price control and patent challenges by copycat
participants may provide negative triggers.
Risks: (a) possible growth slowdown in the domestic market due to drug policy
revisions (b) fully owned subsidiary concerns.
Upside risks may emerge from higher-than-expected pick up from new patented
launches.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSK India
4Q miss; Risk-reward unattractive
„4Q results disappoint; Retain U/P on expensive valuations
GSK’s 4Q profits at Rs1.2bn grew by 15% YoY (down 23% QoQ) driven by higher
other income, still 15% below BofAMLe. Topline growth of 10.4% YoY (against
~16% industry average) remained a concern, while EBITDA margins declined
133bps YoY. Sales at Rs4.9bn was unexciting, however, weak margins led to
mere 5% YoY EBITDA growth (at Rs1.3bn). We revise forecasts noting 4Q miss,
but raise PO to Rs2030 (at 22x P/E) on roll-over to CY12E EPS.
Topline growth still behind industry average
GSK’s weak topline growth of 10.4% was well behind industry average of 14-16%.
While GSK maintained its market share, we believe 1/4th of growth (~3%) was
attributed to vaccines portfolio (12% of sales). Growth for the rest of portfolio
could be below 8%, given 75%+ concentration in acute therapy segments, with
26% of total portfolio falling under price control (DPCO).
Modest organic growth outlook may face hiccups
Our forecast of 13% revenue CAGR over CY10-12E is ahead of mgmt guidance
of 12%, driven by new launches and power brands. Recent new launches
(including in-licensed products) and strengthening of CVS and derma portfolio
should provide medium term growth drivers. However, we believe patented
products from the parent’s (GSK Plc) stable to account for less than 10% of sales
while risk from a generic competition may dampen growth plans.
Premium valuation factors strong cash position of Rs200/sh
GSK is trading at 28x CY11E & 24x CY12E EPS, implying steep 20-25% premium
to large cap pharma peers & at upper-end of its historical P/E bands. However,
given modest earnings growth of 16% & limited upside triggers, we find current
valuations leave little room for error. Strong cash position of Rs200/sh (Rs17bn)
may be utilized for prospective acquisitions to strengthen existing portfolio, raising
expectations. Reiterate Underperform with PO of Rs2030/sh.
Price objective basis & risk
GSK India (GXOLF)
Our PO for GSK is Rs2030 which is based on 22x CY12E EPS, at 10% premium
to the large cap Indian pharmaceutical peers and at upper end of its historical P/E
bands. We believe a premium valuation is justified given its defensive nature and
strong balance sheet. However, current valuations are at a significant premium to
sector and to its historical averages, which are not justified given earnings growth
of 16pc. The company's 16pc EPS CAGR (CY10-12E) is lower than the sector's
24pc+ earnings growth and we find incremental growth drivers missing. Further,
overhang on DPCO coverage on price control and patent challenges by copycat
participants may provide negative triggers.
Risks: (a) possible growth slowdown in the domestic market due to drug policy
revisions (b) fully owned subsidiary concerns.
Upside risks may emerge from higher-than-expected pick up from new patented
launches.
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