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GSK India -Pushing harder
While sales growth remained muted in GSK India’s 1QCY11, the company
continues to focus on expanding product basket and enhancing marketing efforts.
We have seen the company pricing its branded generic launches aggressively so as
to target market share in those categories. 1Q saw a bit of margin compression
due to enhanced marketing efforts that is likely to sustain as the company added
personnel in 1Q. Over coming 3-5 years, we expect more branded generics
launches from the company to boost growth rates from current below market
average rate. This could lead to further expansion of PE multiples.
Sales growth lower than market average
GSK India’s 1QCY11 sales grew 11.3% YoY with double digit growth in vaccines and
mass specialty segments. The company introduced branded generics of J&J’s Ultracet
and a sunscreen gel (Ansolar) from Stiefel’s portfolio. The management expects sales
growth to inch up as they expand their portfolio of branded generics in India along with
continued focus on launching patented products from the GSK Plc basket. The
management earlier guided for growth of 12-14% approaching market average. GSK
India introduced branded generics in key therapy areas like cardiovascular, pain
management and anti-infectives during CY10. The company has strengthened its field
force to c. 2,900 now with addition 550 of sales personnel during the quarter to cater
to new product introductions.
Margins decline on account of higher marketing efforts
GSK’s ebitda margins declined 193bps to 35% led by higher spend on marketing with
rising staff costs and promotion expenditure. The margin pressure is likely to ease as
the sales force expansion gets in to the base and productivity of newly hired personnel
improves over coming quarters. The management intends to continue launching
further branded generics. The manufacturing has been sourced to local Indian players
like Hetero drugs for atorvastatin while GSK focuses on marketing aspect. Apart from
5-6 branded generics, some of the innovative products that they intend to launch
during CY11 are Synflorix, Infanrix-Hexa, Votrient, Revolade and some dermatology
products from the Stiefel range. The company received marketing approvals for
Votrient and Revolade during 1QCY11.
Rich valuations though potential to enhance growth rates
Over coming years, we expect GSK India should be able to enhance it growth rate to
higher than market average levels if it accelerates launches of branded generic drugs
along with patented and in-licensed products. We, however, maintain U-PF rating
considering rich valuations and believe that market share gains would be gradual and a
lot more effort would be required on enhancing product basket.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSK India -Pushing harder
While sales growth remained muted in GSK India’s 1QCY11, the company
continues to focus on expanding product basket and enhancing marketing efforts.
We have seen the company pricing its branded generic launches aggressively so as
to target market share in those categories. 1Q saw a bit of margin compression
due to enhanced marketing efforts that is likely to sustain as the company added
personnel in 1Q. Over coming 3-5 years, we expect more branded generics
launches from the company to boost growth rates from current below market
average rate. This could lead to further expansion of PE multiples.
Sales growth lower than market average
GSK India’s 1QCY11 sales grew 11.3% YoY with double digit growth in vaccines and
mass specialty segments. The company introduced branded generics of J&J’s Ultracet
and a sunscreen gel (Ansolar) from Stiefel’s portfolio. The management expects sales
growth to inch up as they expand their portfolio of branded generics in India along with
continued focus on launching patented products from the GSK Plc basket. The
management earlier guided for growth of 12-14% approaching market average. GSK
India introduced branded generics in key therapy areas like cardiovascular, pain
management and anti-infectives during CY10. The company has strengthened its field
force to c. 2,900 now with addition 550 of sales personnel during the quarter to cater
to new product introductions.
Margins decline on account of higher marketing efforts
GSK’s ebitda margins declined 193bps to 35% led by higher spend on marketing with
rising staff costs and promotion expenditure. The margin pressure is likely to ease as
the sales force expansion gets in to the base and productivity of newly hired personnel
improves over coming quarters. The management intends to continue launching
further branded generics. The manufacturing has been sourced to local Indian players
like Hetero drugs for atorvastatin while GSK focuses on marketing aspect. Apart from
5-6 branded generics, some of the innovative products that they intend to launch
during CY11 are Synflorix, Infanrix-Hexa, Votrient, Revolade and some dermatology
products from the Stiefel range. The company received marketing approvals for
Votrient and Revolade during 1QCY11.
Rich valuations though potential to enhance growth rates
Over coming years, we expect GSK India should be able to enhance it growth rate to
higher than market average levels if it accelerates launches of branded generic drugs
along with patented and in-licensed products. We, however, maintain U-PF rating
considering rich valuations and believe that market share gains would be gradual and a
lot more effort would be required on enhancing product basket.
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