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GSK Consumer Healthcare Ltd
Strong results but wait for a better entry point
GSK Consumer has reported above-estimated Q4CY10 results with net sales/
EBITDA/adj PAT growing at 21.4%/61.2%/58.5% against our estimates of
20%/52.3%/41.6%. The company has reported strong volume growth in its
Horlicks and Boost portfolio along with price hikes of 7% during the quarter.
Foodles and biscuits also showed good traction. Though we continue to like the
base business (HFD), valuations remain expensive. We also remain sceptical on
the scalability of Foodles and profitable growth in biscuits, while the base
business is likely to see input cost pressures. We tweak our earnings estimates by
3.5%/(1.3%) for CY11/CY12, while retaining our target price of Rs 2,200 and
SELL rating on the stock. We recommend entry only at Rs 1,800–1,900 levels.
Sales growth in line with estimates: GSK Consumer reported a 21.4% YoY
increase in net sales to Rs 5.1bn, with volume growth of ~15% and price-led
growth of 7%. Boost and Horlicks continue to do well with 25%/20% sales
growth for the quarter. Boost scaled up its presence in the northern and western
regions, growing 35% in these markets in CY10. The company took a price
increase in the base Horlicks and Boost products in November while hiking
prices of variants in January. The biscuits segment grew at a strong 71% YoY in
the quarter on a lower base coupled with the launch of premium cookies.
Foodles now has an overall market share of 3% in India, with the southern and
eastern market share at 6%.
Strong EBITDA growth of 61%: EBITDA grew 61% YoY to Rs 584mn for the
quarter with margins improving by 285bps YoY to 11.5%. Gross margins for the
company, however, declined by 135bps YoY on account of high milk, wheat and
sugar prices, although malt barley prices were down during the quarter.
Commodity prices were up 6.5% for the year. The company has cut its A&P
expenses by 290bps YoY in Q4, while other expenses declined by 195bps YoY.
Adjusted PAT increased by 58.5% YoY to Rs 534mn, with the tax rate rising
400bps on account of a lower base in Q4CY09.
Maintain SELL with price target of Rs 2,200: We have tweaked our CY11/CY12
earnings estimates by 3.5%/(1.3%). We maintain our September ’11 price target
at Rs 2,200 with a SELL rating on the stock. Given the current valuations of 24.6x
and 21.0x its CY11 and CY12 earnings, we recommend buying into GSK
Consumer only at Rs 1,800–1,900 levels to capture a sizeable upside.
Key highlights from the earnings call
Sales growth was led by a 15% increase in volumes and 7% increase in price.
Exports for the quarter were flat on account of inventory destocking in Sri Lanka.
The Horlicks and Boost portfolios grew 20%/25% YoY for the quarter. The uptick in
Boost was led by an increase in sales in the northern and eastern regions of the
country where GSK Consumer has not been strong traditionally.
Biscuits reported strong growth of 71% and 30% for the quarter and year
respectively and now constitute 7% of the overall turnover.
Horlicks Foodles, launched in December ’09, now has an all-India market share of
3% and a 6% share in the southern states. The management expects to increase the
market share to 15% over the next three years, and to increase the distribution
coverage of Foodles from the current 200,000 to 500,000 over this period.
GSK Consumer’s raw material cost index was up 6.5% YoY in CY10, primarily on
account of milk and milk powder (up 15-16%), wheat (up 2–3%) and sugar. The
company benefitted from lower malt barley prices (down 2–3% YoY), though the
same have started inching up.
For CY11, the management expects RM cost inflation to inch up to 8.5%, primarily
on account of the rising malt barley prices (could increase 16–17% for the year)
and high ruling milk & milk powder rates. The company also expects sugar prices
to increase by 6–7% in CY11.
Employee expenses for the quarter increased on account of a higher provident fund
rate and medical insurance premium for employees along with a wage settlement at
one of the plants.
A&P spends for the quarter declined by 290bps on account of a higher base in
2009 quarter; however, the management expects A&P spends to remain in the
15–17% (of sales) range with the base products accounting for 12–13% and the
balance being on new products.
The company plans to incur maintenance capex of Rs 400mn–500mn next year
while also completing the brownfield expansion of its plant started in 2010 at a cost
of Rs 2bn.
The company has paid dividend of Rs 50 for the year, which includes Rs 25 as
special dividend. It has a cash balance of Rs 9.5bn as on December ’10, and would
look at improving the payout ratio going forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSK Consumer Healthcare Ltd
Strong results but wait for a better entry point
GSK Consumer has reported above-estimated Q4CY10 results with net sales/
EBITDA/adj PAT growing at 21.4%/61.2%/58.5% against our estimates of
20%/52.3%/41.6%. The company has reported strong volume growth in its
Horlicks and Boost portfolio along with price hikes of 7% during the quarter.
Foodles and biscuits also showed good traction. Though we continue to like the
base business (HFD), valuations remain expensive. We also remain sceptical on
the scalability of Foodles and profitable growth in biscuits, while the base
business is likely to see input cost pressures. We tweak our earnings estimates by
3.5%/(1.3%) for CY11/CY12, while retaining our target price of Rs 2,200 and
SELL rating on the stock. We recommend entry only at Rs 1,800–1,900 levels.
Sales growth in line with estimates: GSK Consumer reported a 21.4% YoY
increase in net sales to Rs 5.1bn, with volume growth of ~15% and price-led
growth of 7%. Boost and Horlicks continue to do well with 25%/20% sales
growth for the quarter. Boost scaled up its presence in the northern and western
regions, growing 35% in these markets in CY10. The company took a price
increase in the base Horlicks and Boost products in November while hiking
prices of variants in January. The biscuits segment grew at a strong 71% YoY in
the quarter on a lower base coupled with the launch of premium cookies.
Foodles now has an overall market share of 3% in India, with the southern and
eastern market share at 6%.
Strong EBITDA growth of 61%: EBITDA grew 61% YoY to Rs 584mn for the
quarter with margins improving by 285bps YoY to 11.5%. Gross margins for the
company, however, declined by 135bps YoY on account of high milk, wheat and
sugar prices, although malt barley prices were down during the quarter.
Commodity prices were up 6.5% for the year. The company has cut its A&P
expenses by 290bps YoY in Q4, while other expenses declined by 195bps YoY.
Adjusted PAT increased by 58.5% YoY to Rs 534mn, with the tax rate rising
400bps on account of a lower base in Q4CY09.
Maintain SELL with price target of Rs 2,200: We have tweaked our CY11/CY12
earnings estimates by 3.5%/(1.3%). We maintain our September ’11 price target
at Rs 2,200 with a SELL rating on the stock. Given the current valuations of 24.6x
and 21.0x its CY11 and CY12 earnings, we recommend buying into GSK
Consumer only at Rs 1,800–1,900 levels to capture a sizeable upside.
Key highlights from the earnings call
Sales growth was led by a 15% increase in volumes and 7% increase in price.
Exports for the quarter were flat on account of inventory destocking in Sri Lanka.
The Horlicks and Boost portfolios grew 20%/25% YoY for the quarter. The uptick in
Boost was led by an increase in sales in the northern and eastern regions of the
country where GSK Consumer has not been strong traditionally.
Biscuits reported strong growth of 71% and 30% for the quarter and year
respectively and now constitute 7% of the overall turnover.
Horlicks Foodles, launched in December ’09, now has an all-India market share of
3% and a 6% share in the southern states. The management expects to increase the
market share to 15% over the next three years, and to increase the distribution
coverage of Foodles from the current 200,000 to 500,000 over this period.
GSK Consumer’s raw material cost index was up 6.5% YoY in CY10, primarily on
account of milk and milk powder (up 15-16%), wheat (up 2–3%) and sugar. The
company benefitted from lower malt barley prices (down 2–3% YoY), though the
same have started inching up.
For CY11, the management expects RM cost inflation to inch up to 8.5%, primarily
on account of the rising malt barley prices (could increase 16–17% for the year)
and high ruling milk & milk powder rates. The company also expects sugar prices
to increase by 6–7% in CY11.
Employee expenses for the quarter increased on account of a higher provident fund
rate and medical insurance premium for employees along with a wage settlement at
one of the plants.
A&P spends for the quarter declined by 290bps on account of a higher base in
2009 quarter; however, the management expects A&P spends to remain in the
15–17% (of sales) range with the base products accounting for 12–13% and the
balance being on new products.
The company plans to incur maintenance capex of Rs 400mn–500mn next year
while also completing the brownfield expansion of its plant started in 2010 at a cost
of Rs 2bn.
The company has paid dividend of Rs 50 for the year, which includes Rs 25 as
special dividend. It has a cash balance of Rs 9.5bn as on December ’10, and would
look at improving the payout ratio going forward.
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