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GSK Consumer: Boost to health drinks
Taller, Stronger & Sharper
GSK Consumer is the overriding market leader in the malted beverage drink
market in India, with more than 70% market share. In recent years it has tightened
its hold on the market through continuous product innovation and brand building.
We believe that low penetration levels and demand confidence in nutritional
category bode well for the long term growth of the company. Moreover,
company’s focus on introducing new product variants and expansion into newer
categories, by leveraging the brand Horlicks, provides further growth
opportunities. In our view GSK Consumer is well positioned to increase its market
share, as we expect the top‐line to grow at a CAGR of 21% over CY11‐CY13E. We
initiate with BUY rating.
Market leader in a speedy mounting category
GSK consumer is the major leader in the Indian malted beverage drink market with
more than 70% market share. We expect GSK to grow by 21%, above industry
expected growth of 18%.
Rising demand in nutritional category: Explain sufficient growth visibility
We expect company to outperform industry growth based on rising demand and
awareness for functional food, increasing nutritional labels on array of food products
in store shelves and India’s escalating inclination towards health and wellness.
New Launches: Long term growth trigger
Diversification of product portfolio towards Non‐MFD (malted food drink) category
(noodles, biscuits, glucose, sports drinks and nutritional bars). We believe this as a
positive catalyst in the long term and this will provide significant headroom for
growth.
Low Category penetration: Head room for growth
The malted food category has high scope for growth as penetration levels are low at
22%, where rural penetration is below 5% and urban figures stand at 20%. Now with
the increasing pack size flexibility, ramp up in demand in north and west, continuous
launches will increase category penetration.
Cash pot: Opportunity for Inorganic growth
A strong balance sheet with cash of Rs 9.7 bn and steady operating cash flow of
approx Rs 5 bn in CY10 provides an option to pursue inorganic growth.
Outlook & Valuation
We initiate coverage with a BUY rating and Rs3100 Dec13 price target,
representing 31% upside from current levels. Our target is implying CY11E, CY12E
and CY13E P/E of 29X, 27X and 24X, supported by an earning CAGR forecast of 21%
over CY11‐CY13E and led by strong volume growth and rising penetration of the
category. We value the stock at 24X FY13E EPS of Rs129.1
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSK Consumer: Boost to health drinks
Taller, Stronger & Sharper
GSK Consumer is the overriding market leader in the malted beverage drink
market in India, with more than 70% market share. In recent years it has tightened
its hold on the market through continuous product innovation and brand building.
We believe that low penetration levels and demand confidence in nutritional
category bode well for the long term growth of the company. Moreover,
company’s focus on introducing new product variants and expansion into newer
categories, by leveraging the brand Horlicks, provides further growth
opportunities. In our view GSK Consumer is well positioned to increase its market
share, as we expect the top‐line to grow at a CAGR of 21% over CY11‐CY13E. We
initiate with BUY rating.
Market leader in a speedy mounting category
GSK consumer is the major leader in the Indian malted beverage drink market with
more than 70% market share. We expect GSK to grow by 21%, above industry
expected growth of 18%.
Rising demand in nutritional category: Explain sufficient growth visibility
We expect company to outperform industry growth based on rising demand and
awareness for functional food, increasing nutritional labels on array of food products
in store shelves and India’s escalating inclination towards health and wellness.
New Launches: Long term growth trigger
Diversification of product portfolio towards Non‐MFD (malted food drink) category
(noodles, biscuits, glucose, sports drinks and nutritional bars). We believe this as a
positive catalyst in the long term and this will provide significant headroom for
growth.
Low Category penetration: Head room for growth
The malted food category has high scope for growth as penetration levels are low at
22%, where rural penetration is below 5% and urban figures stand at 20%. Now with
the increasing pack size flexibility, ramp up in demand in north and west, continuous
launches will increase category penetration.
Cash pot: Opportunity for Inorganic growth
A strong balance sheet with cash of Rs 9.7 bn and steady operating cash flow of
approx Rs 5 bn in CY10 provides an option to pursue inorganic growth.
Outlook & Valuation
We initiate coverage with a BUY rating and Rs3100 Dec13 price target,
representing 31% upside from current levels. Our target is implying CY11E, CY12E
and CY13E P/E of 29X, 27X and 24X, supported by an earning CAGR forecast of 21%
over CY11‐CY13E and led by strong volume growth and rising penetration of the
category. We value the stock at 24X FY13E EPS of Rs129.1
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