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Glaxosmithkline Pharmaceutical (GLAX.BO)
Big Miss – Pressure on Valuations?
Big miss — 3Q PAT was well below (c19%) our expectations, primarily on lower
topline growth due to the industry wide slowdown in anti-infectives. We believe this is a
temporary phase and growth should get back to normal from 4Q. However, we revise
CY11-13 EPS estimates by 2-6% & TP to Rs2,200 (roll over to Dec’12E EPS). Upside
remains limited in view of high valuations that may now come under pressure due to
this disappointment & the proposed widening of the price control net. Stay Neutral.
Topline growth slows — After recording healthy growth (+12%) in 1HCY11, 3Q
witnessed a slowdown (+4% YoY vs. Citi Est of +13%), as Pharma (biz excl exports)
grew by 7% YoY. This low growth was despite four new launches last quarter (including
two patented drugs – Votrient & Revolade & a Stiefel derma product) & aggressive
sales force expansion. While oncology, derma, CVS & metabolic registered double-digit
growth, mass market & anti-infectives disappointed due to a weak season & high base.
PAT well below expectations — Higher RM/sales (inferior product mix – increasing
branded generics contribution) & higher SG&A (sales force expansion related) added to
topline woes and led to a significant drop in EBITDA margin (c30%, -587bps YoY,
-495bps QoQ) – lowest in the last ten quarters. PAT declined (-8% YoY) despite higher
interest income & lower tax rate and was c19% below our expectations.
Revising estimates & TP — We lower our topline and EPS est. for CY11/CY12/CY13
by 4%/4%/4% & 6%/2%/3% respectively. Over the longer term, we expect GLAX to
grow faster than the market on new launches & aggressive sales force expansion –
forecast topline & PAT CAGRs of 14% & 16% respectively over CY11E-13E. We roll
forward to Dec’12E EPS and arrive at a TP to Rs2,200/sh (Rs2,170/sh earlier).
Potential Catalysts — a) Higher than expected product launches - especially from the
patented basket & vaccines; b) Inorganic/dividend initiatives to utilize cash on books
(cRs21bn) on its books; c) Vaccine launches: Synflorix, Infarix-Hexa; d) New branded
generics launches; e) implications of the recently proposed DPCO 2011 provisions –
likely negative
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glaxosmithkline Pharmaceutical (GLAX.BO)
Big Miss – Pressure on Valuations?
Big miss — 3Q PAT was well below (c19%) our expectations, primarily on lower
topline growth due to the industry wide slowdown in anti-infectives. We believe this is a
temporary phase and growth should get back to normal from 4Q. However, we revise
CY11-13 EPS estimates by 2-6% & TP to Rs2,200 (roll over to Dec’12E EPS). Upside
remains limited in view of high valuations that may now come under pressure due to
this disappointment & the proposed widening of the price control net. Stay Neutral.
Topline growth slows — After recording healthy growth (+12%) in 1HCY11, 3Q
witnessed a slowdown (+4% YoY vs. Citi Est of +13%), as Pharma (biz excl exports)
grew by 7% YoY. This low growth was despite four new launches last quarter (including
two patented drugs – Votrient & Revolade & a Stiefel derma product) & aggressive
sales force expansion. While oncology, derma, CVS & metabolic registered double-digit
growth, mass market & anti-infectives disappointed due to a weak season & high base.
PAT well below expectations — Higher RM/sales (inferior product mix – increasing
branded generics contribution) & higher SG&A (sales force expansion related) added to
topline woes and led to a significant drop in EBITDA margin (c30%, -587bps YoY,
-495bps QoQ) – lowest in the last ten quarters. PAT declined (-8% YoY) despite higher
interest income & lower tax rate and was c19% below our expectations.
Revising estimates & TP — We lower our topline and EPS est. for CY11/CY12/CY13
by 4%/4%/4% & 6%/2%/3% respectively. Over the longer term, we expect GLAX to
grow faster than the market on new launches & aggressive sales force expansion –
forecast topline & PAT CAGRs of 14% & 16% respectively over CY11E-13E. We roll
forward to Dec’12E EPS and arrive at a TP to Rs2,200/sh (Rs2,170/sh earlier).
Potential Catalysts — a) Higher than expected product launches - especially from the
patented basket & vaccines; b) Inorganic/dividend initiatives to utilize cash on books
(cRs21bn) on its books; c) Vaccine launches: Synflorix, Infarix-Hexa; d) New branded
generics launches; e) implications of the recently proposed DPCO 2011 provisions –
likely negative
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