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Glaxo SmithKline Consumer Healthcare
Volume slowdown, a concern
Results below expectations − Net sales, EBITDA & PAT
reported yoy growth of 9.5%, 9.4% & 15%, respectively.
Volume growth in MFD category slowed down to ~5%,
lower than the 10-12% growth in the last few quarters.
Volume growth in core variants of Horlicks and Boost at
2-3%, while niche variants grow in double-digits.
EBITDA growth in-line with sales, but higher other
income results in adjusted PAT growth of 15% yoy.
We reduce our EPS by 1.3% & 4% for CY11 & CY12
respectively. We roll forward earnings and revise price
target to Rs2,292 (Rs2,258 earlier). Maintain IN-LINE
Sales growth significantly lower-than-expected.
GSKCH posted gross sales growth of 11% (lowest in past
13 quarters) on the back of lower-than-expected 6% (our
estimate 9%) volume growth & 5% realisation increase.
Management cited high base (11-12% volume growth) and
food inflation as the key reason for slowdown, resulting in
MFD category value growth being at 10-12% yoy in the
past six months, as opposed to a 15-16% before that.
EBITDA margins steady, recurring PAT growth 15%.
Higher staff costs (up 20.9%) and other expenses (up
17.5%) was offset by moderate growth in adspends (up
5.4%) resulting in EBITDA growth of 9.4% and margin of
22.4%. However, adjusted PAT growth was higher at 15%
on the back of higher other income.
Other highlights of conference call.
Non-MFD portfolio is growing rapidly. Contributed 7.2% to
sales in 1QCY11 as compared to 5.6% in 1QCY10.
South & East markets contributed 82% of total sales, while
North & West market sales contribution was <10%.
On new products − Currently, Foodles market share stands
at 3.5% nationally and at 5% in South & East; Nutribar
operations have been scaled down; Chill Doodh has been
withdrawn and Acti products are growing slowly; Launched
Boost and Glaxose glucose powders nationally.
Plans capex of Rs35bn over next two years to expand
capacity of its Sonepat manufacturing plant.
Risks higher than rewards. At one-year forward P/E of
26.9x, the stock fully factors the EPS CAGR of 17.4% over
CY10-13E. We note that our EPS assumptions are based
on ~10% volume growth and hence we see downside risks
to our EPS estimates. Also, any more failures in new
products could lead to valuation de-rating. We revise our
price target to Rs2,292 (earlier 2,258) valuing the company
at one year forward P/E of 22x. Maintain IN-LINE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glaxo SmithKline Consumer Healthcare
Volume slowdown, a concern
Results below expectations − Net sales, EBITDA & PAT
reported yoy growth of 9.5%, 9.4% & 15%, respectively.
Volume growth in MFD category slowed down to ~5%,
lower than the 10-12% growth in the last few quarters.
Volume growth in core variants of Horlicks and Boost at
2-3%, while niche variants grow in double-digits.
EBITDA growth in-line with sales, but higher other
income results in adjusted PAT growth of 15% yoy.
We reduce our EPS by 1.3% & 4% for CY11 & CY12
respectively. We roll forward earnings and revise price
target to Rs2,292 (Rs2,258 earlier). Maintain IN-LINE
Sales growth significantly lower-than-expected.
GSKCH posted gross sales growth of 11% (lowest in past
13 quarters) on the back of lower-than-expected 6% (our
estimate 9%) volume growth & 5% realisation increase.
Management cited high base (11-12% volume growth) and
food inflation as the key reason for slowdown, resulting in
MFD category value growth being at 10-12% yoy in the
past six months, as opposed to a 15-16% before that.
EBITDA margins steady, recurring PAT growth 15%.
Higher staff costs (up 20.9%) and other expenses (up
17.5%) was offset by moderate growth in adspends (up
5.4%) resulting in EBITDA growth of 9.4% and margin of
22.4%. However, adjusted PAT growth was higher at 15%
on the back of higher other income.
Other highlights of conference call.
Non-MFD portfolio is growing rapidly. Contributed 7.2% to
sales in 1QCY11 as compared to 5.6% in 1QCY10.
South & East markets contributed 82% of total sales, while
North & West market sales contribution was <10%.
On new products − Currently, Foodles market share stands
at 3.5% nationally and at 5% in South & East; Nutribar
operations have been scaled down; Chill Doodh has been
withdrawn and Acti products are growing slowly; Launched
Boost and Glaxose glucose powders nationally.
Plans capex of Rs35bn over next two years to expand
capacity of its Sonepat manufacturing plant.
Risks higher than rewards. At one-year forward P/E of
26.9x, the stock fully factors the EPS CAGR of 17.4% over
CY10-13E. We note that our EPS assumptions are based
on ~10% volume growth and hence we see downside risks
to our EPS estimates. Also, any more failures in new
products could lead to valuation de-rating. We revise our
price target to Rs2,292 (earlier 2,258) valuing the company
at one year forward P/E of 22x. Maintain IN-LINE.
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