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GlaxoSmithKline Pharma (Glaxo) reported in-line 4QCY2010 results, except on
the operating front, driven by growth across all its business segments. The overall
pharma business reported growth of 14%, with the vaccines, mass specialities,
specialities and mass markets registering yoy growth of 24%, 16%, 19% and 10%,
respectively. Sales of patented products namely Tykerb and Arixtra rose by 25%.
We remain Neutral on the stock.
Overall in line results: Glaxo reported net sales of `491cr (`444cr), up 10% yoy,
driven by growth across all its business units, mass markets, mass speciality,
specialities, including dermatological, oncology, critical care and vaccines.
The high-margin vaccine segment (mainly Rotarix and Cervarix) grew by 24%
during the quarter. Glaxo reported OPM of 30% (31.2%), in line with our
estimates of 30%. The company reported a drop in the gross margins to 63.0%
(64.1%) during the quarter, impacted by inflation in material costs, majorly due to
increased purchase goods. The company reported net profit at `116cr (`104cr),
up 11.5% yoy, on the back of higher interest income.
Outlook and valuation: We expect net sales to post a 13.9% CAGR to `2,788cr
and EPS to register a 13.3% CAGR to `85.0 over CY2010–12. At current levels,
the stock is trading at 29.7x and 26.2x CY2011E and CY2012E earnings,
respectively. We remain Neutral on the stock.
OPM in line with estimates: Glaxo reported OPM of 30% (31.2%), which was
exactly in line with our estimate of 30%. The company reported a drop in gross
margins to 63.0% (64.1%), impacted by inflation in material costs, majorly due to
increased purchased goods.
Net profit in line with estimates, up 11.5%, driven by interest income: Glaxo
reported net profit of `116cr (`104cr), up 11.5% yoy, on the back of higher other
income. The company registered other income of `41cr (`25cr), up 63% yoy,
driven by higher interest income.
Recommendation rationale
Renewed focus on the Indian market: Glaxo is among the top five players in the
Indian market having a market share of ~5%. Post the IPR regime, the company
has renewed its focus on the domestic market with the launch of five patented
products (mainly Tykerb and Rotarix) in the last two years. In CY2011, the
company plans to launch 4–6 branded generic products, two oncology products
and Synflorix vaccine. New product launches since CY2007 have accounted for
26% yoy top-line growth registered by the company in CY2010. Further, in line
with market dynamics, Glaxo has launched patented products at discounts in India
compared to other markets. To achieve penetration-led growth, the company
plans to add 570–600MRs in CY2011 (current strength: 2900MRs); all of this
would be done in 1QCY2011. For CY2011, the company expects total pharma
sales to increase by 14.5% yoy with operating margins at 33–35%.
Outlook and valuation: Glaxo has a strong balance sheet with cash of `2,000cr
(~10% of market cap), which could be used for future acquisitions or higher
dividend payouts. We expect net sales to post a 13.9% CAGR to `2,788cr and EPS
to register a 13.3% CAGR to `85.0 over CY2010–12. At current levels, the stock is
trading at 29.7x and 26.2x CY2011E and CY2012E earnings, respectively.
We remain Neutral on the stock.
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GlaxoSmithKline Pharma – 4QCY2010 Result Update
Angel Broking maintains Neutral view on GlaxoSmithKline Pharma.
GlaxoSmithKline Pharma (Glaxo) reported in-line 4QCY2010 results, except on
the operating front, driven by growth across all its business segments. The overall
pharma business reported growth of 14%, with the vaccines, mass specialities,
specialities and mass markets registering yoy growth of 24%, 16%, 19% and 10%,
respectively. Sales of patented products namely Tykerb and Arixtra rose by 25%.
We remain Neutral on the stock.
Overall in line results: Glaxo reported net sales of `491cr (`444cr), up 10% yoy,
driven by growth across all its business units, mass markets, mass speciality,
specialities, including dermatological, oncology, critical care and vaccines.
The high-margin vaccine segment (mainly Rotarix and Cervarix) grew by 24%
during the quarter. Glaxo reported OPM of 30% (31.2%), in line with our
estimates of 30%. The company reported a drop in the gross margins to 63.0%
(64.1%) during the quarter, impacted by inflation in material costs, majorly due to
increased purchase goods. The company reported net profit at `116cr (`104cr),
up 11.5% yoy, on the back of higher interest income.
Outlook and valuation: We expect net sales to post a 13.9% CAGR to `2,788cr
and EPS to register a 13.3% CAGR to `85.0 over CY2010–12. At current levels,
the stock is trading at 29.7x and 26.2x CY2011E and CY2012E earnings,
respectively. We remain Neutral on the stock.
Revenue in line, up 10%: Glaxo reported net sales of `491cr (`444cr), up 10%
yoy. The overall pharma business registered growth of 14%, with the vaccines
(mainly Rotarix and Cervarix), mass specialties, specialties and mass markets
reporting yoy growth of 24%, 16%, 19% and 10%, respectively. Sales of patented
products such as Tykerb and Arixtra rose by 25% during the quarter. The new
products launched in CY2009, which are expected to be an important part of the
company’s growth strategy, contributed around 7% to total pharma sales, with
26% contribution to overall growth in CY2010. Glaxo expects to launch Revolade
(a drug for low platelet counts) and Votrient (for metastatic renal cell carcinoma) by
1QCY2011. Also, the company is expected to launch 4–6 branded generic
products and Synflorix vaccine in CY2011.
During the year, Glaxo continued to augment its portfolio by launching a number
of products across its diversified segments. The company launched Mycamine
(Micafungin), an injectable antifungal in-licensed from Astellas; and Parit D
capsules (Rabepazole in combination with Domepridone) in-licensed from Esai.
To strengthen its position in the cardiovascular segment, the company entered the
statins segment and launched Lilo (Atoravastatin) and Rosutec (Rosuvastatin). In the
dermatology segment, Glaxo launched Modvate 3 cream (Beclomethasone in
combination with Clotrimazole and Neomycin) and Modvate AF cream
(Beclomethasone in combination with Clotrimazole).
OPM in line with estimates: Glaxo reported OPM of 30% (31.2%), which was
exactly in line with our estimate of 30%. The company reported a drop in gross
margins to 63.0% (64.1%), impacted by inflation in material costs, majorly due to
increased purchased goods.
Net profit in line with estimates, up 11.5%, driven by interest income: Glaxo
reported net profit of `116cr (`104cr), up 11.5% yoy, on the back of higher other
income. The company registered other income of `41cr (`25cr), up 63% yoy,
driven by higher interest income.
Recommendation rationale
Renewed focus on the Indian market: Glaxo is among the top five players in the
Indian market having a market share of ~5%. Post the IPR regime, the company
has renewed its focus on the domestic market with the launch of five patented
products (mainly Tykerb and Rotarix) in the last two years. In CY2011, the
company plans to launch 4–6 branded generic products, two oncology products
and Synflorix vaccine. New product launches since CY2007 have accounted for
26% yoy top-line growth registered by the company in CY2010. Further, in line
with market dynamics, Glaxo has launched patented products at discounts in India
compared to other markets. To achieve penetration-led growth, the company
plans to add 570–600MRs in CY2011 (current strength: 2900MRs); all of this
would be done in 1QCY2011. For CY2011, the company expects total pharma
sales to increase by 14.5% yoy with operating margins at 33–35%.
Outlook and valuation: Glaxo has a strong balance sheet with cash of `2,000cr
(~10% of market cap), which could be used for future acquisitions or higher
dividend payouts. We expect net sales to post a 13.9% CAGR to `2,788cr and EPS
to register a 13.3% CAGR to `85.0 over CY2010–12. At current levels, the stock is
trading at 29.7x and 26.2x CY2011E and CY2012E earnings, respectively.
We remain Neutral on the stock.
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