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GlaxoSmithKline Consumer
Healthcare Limited
Overweight
GLSM.BO, SKB IN
1Q CY11 : Subdued volume growth leads to earnings
disappointment
• Volume miss; earnings 3% below estimates: GSK Consumer reported
9%, 9% and 15% Net Sales, EBITDA and PAT growth for 1Q CY11.
Sales growth was lower than our estimate on account of lower-thanexpected
volume growth of 6.5%, excise duty (1.5%) and one-off base
effect of 1.5%. EBITDA margins were flat y/y and higher business
auxiliary income led to 15% EPS growth. While 1Q CY11 sales growth
was subdued, management remains confident of a revival in coming
quarters and guided to 15-16% sales growth for CY11. We expect the
stock to react negatively to the volume miss.
• Weak volume growth trends likely to reverse in 2Q CY11: MFD
segment registered 9% sales growth led by 5.5% volume growth and
4.5% price increase. Management noted that MFD category growth rates
have moderated over the past 3-6 months on account of inflationary
pressures; it has seen a revival in growth rates in Apr-May'11 and
expects them to strengthen going forward. While base Horlicks and
Boost brand volume grew 2-3%, sub-brands such as Women’s Horlicks,
Junior Horlicks saw high-double-digit volume growth in the quarter.
• Healthy sales growth for biscuits and noodles which contributed 7%
to overall revenue during the quarter. Biscuit sales grew 57%, helped by
a number of new launches, while Noodles (3.5% national share now)
benefited from distribution gains. Management expects steady revenue
growth of 25-30% for both these categories.
• Gross margins improved 150bp y/y aided by price rises and deflation
in inputs such as sugar and wheat. However, malt barley, milk prices and
packaging costs remain high. A&P/Sales moderated to 14.6% (-60bp y/y,
-310bp q/q) during the quarter.
• Distribution expansion and new launches to support growth rates:
Management intends to increase its direct reach from 650,000 retail
outlets to 800,000 outlets over the next two years. It has seen a mixed
response to recent launches – while noodles and biscuits had a good
consumer offtake, the company’s foray into milk-based drinks and
breakfast cereal bars had a subdued performance. GSK recently
announced its entry into the Rs5B glucose drink market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GlaxoSmithKline Consumer
Healthcare Limited
Overweight
GLSM.BO, SKB IN
1Q CY11 : Subdued volume growth leads to earnings
disappointment
• Volume miss; earnings 3% below estimates: GSK Consumer reported
9%, 9% and 15% Net Sales, EBITDA and PAT growth for 1Q CY11.
Sales growth was lower than our estimate on account of lower-thanexpected
volume growth of 6.5%, excise duty (1.5%) and one-off base
effect of 1.5%. EBITDA margins were flat y/y and higher business
auxiliary income led to 15% EPS growth. While 1Q CY11 sales growth
was subdued, management remains confident of a revival in coming
quarters and guided to 15-16% sales growth for CY11. We expect the
stock to react negatively to the volume miss.
• Weak volume growth trends likely to reverse in 2Q CY11: MFD
segment registered 9% sales growth led by 5.5% volume growth and
4.5% price increase. Management noted that MFD category growth rates
have moderated over the past 3-6 months on account of inflationary
pressures; it has seen a revival in growth rates in Apr-May'11 and
expects them to strengthen going forward. While base Horlicks and
Boost brand volume grew 2-3%, sub-brands such as Women’s Horlicks,
Junior Horlicks saw high-double-digit volume growth in the quarter.
• Healthy sales growth for biscuits and noodles which contributed 7%
to overall revenue during the quarter. Biscuit sales grew 57%, helped by
a number of new launches, while Noodles (3.5% national share now)
benefited from distribution gains. Management expects steady revenue
growth of 25-30% for both these categories.
• Gross margins improved 150bp y/y aided by price rises and deflation
in inputs such as sugar and wheat. However, malt barley, milk prices and
packaging costs remain high. A&P/Sales moderated to 14.6% (-60bp y/y,
-310bp q/q) during the quarter.
• Distribution expansion and new launches to support growth rates:
Management intends to increase its direct reach from 650,000 retail
outlets to 800,000 outlets over the next two years. It has seen a mixed
response to recent launches – while noodles and biscuits had a good
consumer offtake, the company’s foray into milk-based drinks and
breakfast cereal bars had a subdued performance. GSK recently
announced its entry into the Rs5B glucose drink market.
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