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● Jun-11 results were weak with a 2% sales miss and a 9% EBITDA
miss. However, its lower margins are not so alarming as gross
margins continue to remain strong (Figure 3) and the miss was
driven by high personnel cost (+20% QoQ)—likely related to field
force increase of 400 medical reps planned for CY11.
● Pharma sales growth of 13.8% was better than peers despite antiinfectives
constituting 26% of the portfolio. The low base also
helped as the Jun-10 quarter had supply issues for vaccines.
● AIOCD data shows that the anti-infectives portfolio is
concentrated, with top five molecules accounting for 23% of total
sales (Figure 2). Growth in anti-infectives was 10% for GSK while
rest of the portfolio grew by 15%.
● GSK’s valuation has come off from the high of 30x to 25x oneyear
forward P/E or 23.6x CY12E (Figure 4). We believe this has
been driven by: (1) concerns about slowing growth in the antiinfectives
therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics
segment. Our estimates are under review for GSK.
Sales growth better than peers but helped by low base
Overall sales growth for GSK in 2Q11 was 12.8%: its pharma
business (accounting for 93% of total revenues) grew 13.8%, while
revenues from the rest of its businesses were flat. The growth was
strong compared to several of its peers despite having majority of the
portfolio as acute and with anti-infectives accounting for ~26% the
total sales (AIOCD). The growth was also helped by low base as the
same quarter last year had supply issues for vaccines.
Anti-infective portfolio is concentrated and grew by 10%
Anti-infectives account for 26% of GSK’s sales and AIOCD data shows
that top five molecules in anti-infectives account for 23% of pharma
division sales. Figure 2 shows that overall on these molecules, GSK has
been growing slower than the industry average, mainly due to slower
volume growth than the industry (price change by GSK has been in line
with the industry); however, unlike peers’ growth in anti-infectives, it is at
least good at 10%, while rest of its portfolio grew by 15%.
Margins impacted by high personnel cost
EBITDA margins of 33.3% for the quarter were lower than expected,
although still within CY11 guidance of 33-35%. Although gross
margins remained strong at 63%, EBITDA margins were impacted by
higher personnel cost, which increased 20% QoQ (while sales
declined 7% QoQ). The increase in personnel cost was likely related
to field force increase of 400 medical reps planned for CY11.
GSK’s valuation has come off from 30x to 25x one-year forward P/E.
We believe this is driven by: (1) concerns about slowing growth in the
anti-infectives therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Jun-11 results were weak with a 2% sales miss and a 9% EBITDA
miss. However, its lower margins are not so alarming as gross
margins continue to remain strong (Figure 3) and the miss was
driven by high personnel cost (+20% QoQ)—likely related to field
force increase of 400 medical reps planned for CY11.
● Pharma sales growth of 13.8% was better than peers despite antiinfectives
constituting 26% of the portfolio. The low base also
helped as the Jun-10 quarter had supply issues for vaccines.
● AIOCD data shows that the anti-infectives portfolio is
concentrated, with top five molecules accounting for 23% of total
sales (Figure 2). Growth in anti-infectives was 10% for GSK while
rest of the portfolio grew by 15%.
● GSK’s valuation has come off from the high of 30x to 25x oneyear
forward P/E or 23.6x CY12E (Figure 4). We believe this has
been driven by: (1) concerns about slowing growth in the antiinfectives
therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics
segment. Our estimates are under review for GSK.
Sales growth better than peers but helped by low base
Overall sales growth for GSK in 2Q11 was 12.8%: its pharma
business (accounting for 93% of total revenues) grew 13.8%, while
revenues from the rest of its businesses were flat. The growth was
strong compared to several of its peers despite having majority of the
portfolio as acute and with anti-infectives accounting for ~26% the
total sales (AIOCD). The growth was also helped by low base as the
same quarter last year had supply issues for vaccines.
Anti-infective portfolio is concentrated and grew by 10%
Anti-infectives account for 26% of GSK’s sales and AIOCD data shows
that top five molecules in anti-infectives account for 23% of pharma
division sales. Figure 2 shows that overall on these molecules, GSK has
been growing slower than the industry average, mainly due to slower
volume growth than the industry (price change by GSK has been in line
with the industry); however, unlike peers’ growth in anti-infectives, it is at
least good at 10%, while rest of its portfolio grew by 15%.
Margins impacted by high personnel cost
EBITDA margins of 33.3% for the quarter were lower than expected,
although still within CY11 guidance of 33-35%. Although gross
margins remained strong at 63%, EBITDA margins were impacted by
higher personnel cost, which increased 20% QoQ (while sales
declined 7% QoQ). The increase in personnel cost was likely related
to field force increase of 400 medical reps planned for CY11.
GSK’s valuation has come off from 30x to 25x one-year forward P/E.
We believe this is driven by: (1) concerns about slowing growth in the
anti-infectives therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics segment.
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