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Key Takeaways
To sustain double-digit top-line growth
GlaxoSmithKline Pharmaceuticals (GLXO) management expects to sustain 12-14% topline
growth until CY15. However, it expects CY11 top-line growth to be at the lower end
of its guidance due to increased competition. GLXO's pharmaceutical sales grew ~13%
in 1HCY11. GLXO's growth will be led by a focus on priority products, expanding
therapeutic and geographic coverage and incremental contribution from new launches.
EBITDA margins guidance at 33-35%
The management indicated it would sustain EBITDA margins at 33-35% until CY15
despite an increase in its field force. GLXO's strong brand equity with doctors enables it
to sustain premium pricing for many of its brands resulting in high profitability. However,
the management indicated that there was no room for margin improvement.
Aggressive new launches
GLXO indicated that its parent was strongly committed to the Indian operations. This is
evident from the fact that many new products were launched over CY08-10, including
four vaccines including Cervarix (cervical cancer vaccine for women). GLXO intends to
launch 6-7 new products in 2HCY11 and in 1HCY11 it launched six new products. Among
the launches over the past two years, we believe Cervarix, Rotarix (Rotavirus vaccine)
and Revolade (platelet aggregator) hold good long-term potential.
Expanding a rural presence
GLXO is expanding in rural areas. The management believes that to be successful in
rural areas, a company needs products, medical infrastructure and will have to follow
different marketing practises than in urban areas.
DPCO may pose a threat
The management believes that if all the products mentioned in the New List of Essential
Medicines come under DPCO, it would have a significantly adverse impact on the company
and the industry. However the management is not sure about how and in what form the
policy will be implemented.
Valuation and view
GLXO deserves premium valuations due to strong parentage (giving it access to a large
product pipeline), brand-building ability and likely positioning in the post-patent era. It is
one of the few companies with the ability to drive reasonable growth without major
capital requirement, leading to high RoCE of over 45%. The stock is valued at 27.7x
CY11E and 24x CY12E earnings. Maintain Buy with a target price of INR2,328 (26x
CY11E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
To sustain double-digit top-line growth
GlaxoSmithKline Pharmaceuticals (GLXO) management expects to sustain 12-14% topline
growth until CY15. However, it expects CY11 top-line growth to be at the lower end
of its guidance due to increased competition. GLXO's pharmaceutical sales grew ~13%
in 1HCY11. GLXO's growth will be led by a focus on priority products, expanding
therapeutic and geographic coverage and incremental contribution from new launches.
EBITDA margins guidance at 33-35%
The management indicated it would sustain EBITDA margins at 33-35% until CY15
despite an increase in its field force. GLXO's strong brand equity with doctors enables it
to sustain premium pricing for many of its brands resulting in high profitability. However,
the management indicated that there was no room for margin improvement.
Aggressive new launches
GLXO indicated that its parent was strongly committed to the Indian operations. This is
evident from the fact that many new products were launched over CY08-10, including
four vaccines including Cervarix (cervical cancer vaccine for women). GLXO intends to
launch 6-7 new products in 2HCY11 and in 1HCY11 it launched six new products. Among
the launches over the past two years, we believe Cervarix, Rotarix (Rotavirus vaccine)
and Revolade (platelet aggregator) hold good long-term potential.
Expanding a rural presence
GLXO is expanding in rural areas. The management believes that to be successful in
rural areas, a company needs products, medical infrastructure and will have to follow
different marketing practises than in urban areas.
DPCO may pose a threat
The management believes that if all the products mentioned in the New List of Essential
Medicines come under DPCO, it would have a significantly adverse impact on the company
and the industry. However the management is not sure about how and in what form the
policy will be implemented.
Valuation and view
GLXO deserves premium valuations due to strong parentage (giving it access to a large
product pipeline), brand-building ability and likely positioning in the post-patent era. It is
one of the few companies with the ability to drive reasonable growth without major
capital requirement, leading to high RoCE of over 45%. The stock is valued at 27.7x
CY11E and 24x CY12E earnings. Maintain Buy with a target price of INR2,328 (26x
CY11E).
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