Buy GSK Consumer Healthcare- Margin expansion on low ad spend; Anand Rathi

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Glaxo SmithKline Consumer Healthcare
Margin expansion on low ad spend; maintain Buy
GSK-CH sustained the strong momentum in 4QCY10, with
revenue and PAT growing 21.4% yoy and 58% yoy respectively.
The company has declared dividend of `25 and special dividend
of `25. We remain confident about GSK-CH’s growth p
rospects
and maintain our Buy, and target price of `2,755.
 Revenue grows 21.4% yoy. GSK-CH reported revenue growth
of 21.4% yoy, including ~15% volume growth and the remaining
~8% price hikes. The company had hiked prices by 5% in
Nov ’10, to pass on the increase in raw material costs.
 Lower ad spend expands margin. EBITDA margin expanded
270bps due to lower ad spend. In the absence of launches in
4QCY10 (with re-launch of Horlicks complete in 3Q), ad spend
reduced. Net profit is up 58% yoy, despite rise in income tax.
 Outlook. We expect GSK-CH to maintain strong revenue growth
momentum backed by its sub-segmentation strategy. Though rawmaterial
prices continue to rise, the company has shown strong
ability to hike prices and maintain margin. We expect it to register
revenue and earnings CAGR of 17% and 24% respectively over
CY10-12e.
 Valuation and risks. We value the stock at target price of `2,755,
based on target PE of 25x CY12e earnings. Our target PE is at
50% premium to the 12-month forward Nifty PE. GSK-CH has
cash per share of `250. Key risks are higher raw material prices
and keener competition.