Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GlaxoSmithKline Pharmaceuticals (GLXO) posted net sales of INR5.66b (v/s our estimate of INR5.43b) for
4QCY12, up 15.4% YoY. EBITDA grew 15.8% YoY to INR1.71b (v/s our estimate of INR1.62b) while adjusted PAT
increased 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b).
While overall revenue growth was 15.4% YoY, revenue from the core pharmaceuticals business grew by an
impressive 18.2% YoY. Topline growth was led by revival in the Mass Market business and Anti-infectives
segments. Vaccines and Specialty segments including Oncology, Dermatology, Cardiovascular and Metabolics
reported robust double-digit growth, driven by new product launches.
EBITDA grew 15.8% YoY to INR1.71b; EBITDA margin remained flat YoY at 30.1% (v/s our estimate of 29.8%).
EBITDA was higher than estimated, primarily led by better than estimated topline growth.
Adjusted PAT increased by 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b), led by higher than estimated
other income and lower effective tax rate. GLXO has declared INR45/share as dividend.
We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products
in the high-growth lifestyle segments. These launches should bring in long-term benefits. While we expect
double-digit topline growth to sustain over the next few years, the growth trajectory should improve further
post CY13, as new launches start contributing meaningfully. This growth is likely to be funded through miniscule
capex and negative net working capital. GLXO deserves premium valuations due to strong parentage (giving
access to large product pipeline), brand-building ability and likely positioning in the post-patent era. It is one of
the very few companies, with the ability to achieve reasonable growth without any major capital requirement,
leading to high RoCE of over 45%. We expect GLXO to record an EPS of INR87.4 (up 17.2%) in CY12. The stock
currently trades at 23.9x CY12E EPS. Maintain Buy, with a target price of INR2,272 (26x CY12E EPS).
Aggressive new launches
GSK is strongly committed to Indian operations, which is evident from the fact that
many new products have been launched in CY08-10 period. This includes four vaccines
including the latest Cervarix (cervical cancer vaccine for women) and Tykerb (anticancer).
We believe that Cervarix, Rotarix (Rotavirus vaccine) and Eltrombopag
(platelet aggregator) hold good long-term potential. It has attained the leadership
position in the cervical cancer vaccine market despite launching Cervarix post Merck’s
launch of Gardsil. GSK has recently dropped prices of this vaccine (not quantified). In
line with its strategy, GSK is gradually ramping up its presence in the high-growth
lifestyle segments through a combination of launching product’s from the parent’s
pipeline, in-licensing from other MNCs and launch of branded generics. Despite having
a negligible contribution from the life-style segments, GSK currently enjoys one of
the highest profitability in the industry (EBITDA margins of 35%).
Draft New Pharma Pricing Policy, if implemented in its current form, likely
to impact earnings
The government has released the draft of the National Pharmaceuticals Pricing Policy,
2011 (NPPP). The proposed policy significantly increased the span of price control. All
the 348 drugs, which are currently a part of the National List of Essential Medicines
(NLEM) will be subjected to price control. Currently, only 74 drugs are under price
control. Price control will be implemented on formulations of these drugs as compared
to the current practice of controlling bulk drug price. Further, price control will also
apply to combination drugs and to all the dosage strengths of the drugs.
If the policy is implemented in its current form, as per AIOCD analysis, GLXO’s sales
will impacted by INR1.51b (6% of revenue). This translates into 13.5% impact on
earnings.
Upgrading earnings estimates by 3%
Based on 4QCY11 result and guidance given by the management, we have increased
revenue estimates for CY12 by 1%. Consequently, we have increased earnings
estimates for CY12 by 2.8%. Our estimates do not take into account the impact of
NPPP.
Valuation and view
We believe GSK is one of the best plays on IPR regime in India with aggressive plans
to launch new products in the high-growth life-style segments. These launches are
expected to bring in long-term benefits. We believe GSK is likely to sustain doubledigit
topline growth over the next few years. We believe that this growth trajectory
will improve further post CY13, as new launches start contributing meaningfully to
topline. Given the high profitability of operations, we expect this growth to lead to
sustainable double-digit earnings growth and RoE of ~30%. This growth is likely to be
funded through miniscule capex and negative net working capital.
GSK deserves premium valuations due to strong parentage (giving access to large
product pipeline), brand-building ability and likely positioning in post patent era. It is
one of the very few companies with ability to drive reasonable growth without any
major capital requirement leading to high RoCE of over 45%. Based on our revised
estimates, we expect GSK to record CY12E EPS of INR87.4 (up 17.2%). The stock is
currently valued at 23.9x CY12E. Maintain Buy with a target price of INR2,272 (26x
CY12E).
Company description
GSK Pharma (50% subsidiary of GSK Plc) is the 4rd largest
formulations company and second largest pharma MNC
in India , with a strong presence in segments like
dermatology, respiratory and vaccines. Its parent has one
of the richest product and R&D pipelines among Pharma
companies worldwide.
Key investment arguments
Excellent branded portfolio with strong presence in
dermatology, respiratory and vaccines; increased
focus on high margin-high growth “power brands”
has improved product mix.
Parent’s strong pipeline holds good upside potential
post IPR implementation, with no conflict issues
involved with any other subsidiary.
GSK is strongly committed to its Indian operations,
which is evident from the fact that 9 patented (or
low-competition) products have launched in the
CY08-10 period.
Key investment risks
Biggest risk to GSK Pharma could be the
implementation of the new pharmaceutical policy
in the current form. The new policy proposes to
significantly increase the span of control by bringing
in additional 354 drugs under price control. This could
severely impact the profitability of GSK Pharma’s
business.
Possible pre-grant and post-grant patent challenges
by domestic generic companies could hamper the
plans and prospects of launch of patented product
by GSK Pharma in India.
Recent developments
Launch of Votrient, indicated for the treatment of
advanced renal cell carcinoma and Revolade for the
treatment of reduced platelet count.
Valuation and view
We believe GSK is one of the best plays on IPR regime
in India. Parent is fully committed to the listed
entity, which is evident from the fact that it is
proposing to launch most of the patented products
through the listed entity
The stock is currently valued at 23.9x CY12E earnings.
We maintain Buy.
Sector view
The domestic market is expected to witness 12-13%
growth, with gradual increase in the low penetration
levels – companies with strong brands and marketing
muscle to benefit. IPR regime unlikely to lead to
any major change in the near term; MNCs and large
Indian players to gain over the longer term.
Among MNCs, we are bullish on companies whose
domestic portfolio is well aligned with its parent
and where risk of conflict with 100% subsidiaries is
limited.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GlaxoSmithKline Pharmaceuticals (GLXO) posted net sales of INR5.66b (v/s our estimate of INR5.43b) for
4QCY12, up 15.4% YoY. EBITDA grew 15.8% YoY to INR1.71b (v/s our estimate of INR1.62b) while adjusted PAT
increased 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b).
While overall revenue growth was 15.4% YoY, revenue from the core pharmaceuticals business grew by an
impressive 18.2% YoY. Topline growth was led by revival in the Mass Market business and Anti-infectives
segments. Vaccines and Specialty segments including Oncology, Dermatology, Cardiovascular and Metabolics
reported robust double-digit growth, driven by new product launches.
EBITDA grew 15.8% YoY to INR1.71b; EBITDA margin remained flat YoY at 30.1% (v/s our estimate of 29.8%).
EBITDA was higher than estimated, primarily led by better than estimated topline growth.
Adjusted PAT increased by 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b), led by higher than estimated
other income and lower effective tax rate. GLXO has declared INR45/share as dividend.
We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products
in the high-growth lifestyle segments. These launches should bring in long-term benefits. While we expect
double-digit topline growth to sustain over the next few years, the growth trajectory should improve further
post CY13, as new launches start contributing meaningfully. This growth is likely to be funded through miniscule
capex and negative net working capital. GLXO deserves premium valuations due to strong parentage (giving
access to large product pipeline), brand-building ability and likely positioning in the post-patent era. It is one of
the very few companies, with the ability to achieve reasonable growth without any major capital requirement,
leading to high RoCE of over 45%. We expect GLXO to record an EPS of INR87.4 (up 17.2%) in CY12. The stock
currently trades at 23.9x CY12E EPS. Maintain Buy, with a target price of INR2,272 (26x CY12E EPS).
Aggressive new launches
GSK is strongly committed to Indian operations, which is evident from the fact that
many new products have been launched in CY08-10 period. This includes four vaccines
including the latest Cervarix (cervical cancer vaccine for women) and Tykerb (anticancer).
We believe that Cervarix, Rotarix (Rotavirus vaccine) and Eltrombopag
(platelet aggregator) hold good long-term potential. It has attained the leadership
position in the cervical cancer vaccine market despite launching Cervarix post Merck’s
launch of Gardsil. GSK has recently dropped prices of this vaccine (not quantified). In
line with its strategy, GSK is gradually ramping up its presence in the high-growth
lifestyle segments through a combination of launching product’s from the parent’s
pipeline, in-licensing from other MNCs and launch of branded generics. Despite having
a negligible contribution from the life-style segments, GSK currently enjoys one of
the highest profitability in the industry (EBITDA margins of 35%).
Draft New Pharma Pricing Policy, if implemented in its current form, likely
to impact earnings
The government has released the draft of the National Pharmaceuticals Pricing Policy,
2011 (NPPP). The proposed policy significantly increased the span of price control. All
the 348 drugs, which are currently a part of the National List of Essential Medicines
(NLEM) will be subjected to price control. Currently, only 74 drugs are under price
control. Price control will be implemented on formulations of these drugs as compared
to the current practice of controlling bulk drug price. Further, price control will also
apply to combination drugs and to all the dosage strengths of the drugs.
If the policy is implemented in its current form, as per AIOCD analysis, GLXO’s sales
will impacted by INR1.51b (6% of revenue). This translates into 13.5% impact on
earnings.
Upgrading earnings estimates by 3%
Based on 4QCY11 result and guidance given by the management, we have increased
revenue estimates for CY12 by 1%. Consequently, we have increased earnings
estimates for CY12 by 2.8%. Our estimates do not take into account the impact of
NPPP.
Valuation and view
We believe GSK is one of the best plays on IPR regime in India with aggressive plans
to launch new products in the high-growth life-style segments. These launches are
expected to bring in long-term benefits. We believe GSK is likely to sustain doubledigit
topline growth over the next few years. We believe that this growth trajectory
will improve further post CY13, as new launches start contributing meaningfully to
topline. Given the high profitability of operations, we expect this growth to lead to
sustainable double-digit earnings growth and RoE of ~30%. This growth is likely to be
funded through miniscule capex and negative net working capital.
GSK deserves premium valuations due to strong parentage (giving access to large
product pipeline), brand-building ability and likely positioning in post patent era. It is
one of the very few companies with ability to drive reasonable growth without any
major capital requirement leading to high RoCE of over 45%. Based on our revised
estimates, we expect GSK to record CY12E EPS of INR87.4 (up 17.2%). The stock is
currently valued at 23.9x CY12E. Maintain Buy with a target price of INR2,272 (26x
CY12E).
Company description
GSK Pharma (50% subsidiary of GSK Plc) is the 4rd largest
formulations company and second largest pharma MNC
in India , with a strong presence in segments like
dermatology, respiratory and vaccines. Its parent has one
of the richest product and R&D pipelines among Pharma
companies worldwide.
Key investment arguments
Excellent branded portfolio with strong presence in
dermatology, respiratory and vaccines; increased
focus on high margin-high growth “power brands”
has improved product mix.
Parent’s strong pipeline holds good upside potential
post IPR implementation, with no conflict issues
involved with any other subsidiary.
GSK is strongly committed to its Indian operations,
which is evident from the fact that 9 patented (or
low-competition) products have launched in the
CY08-10 period.
Key investment risks
Biggest risk to GSK Pharma could be the
implementation of the new pharmaceutical policy
in the current form. The new policy proposes to
significantly increase the span of control by bringing
in additional 354 drugs under price control. This could
severely impact the profitability of GSK Pharma’s
business.
Possible pre-grant and post-grant patent challenges
by domestic generic companies could hamper the
plans and prospects of launch of patented product
by GSK Pharma in India.
Recent developments
Launch of Votrient, indicated for the treatment of
advanced renal cell carcinoma and Revolade for the
treatment of reduced platelet count.
Valuation and view
We believe GSK is one of the best plays on IPR regime
in India. Parent is fully committed to the listed
entity, which is evident from the fact that it is
proposing to launch most of the patented products
through the listed entity
The stock is currently valued at 23.9x CY12E earnings.
We maintain Buy.
Sector view
The domestic market is expected to witness 12-13%
growth, with gradual increase in the low penetration
levels – companies with strong brands and marketing
muscle to benefit. IPR regime unlikely to lead to
any major change in the near term; MNCs and large
Indian players to gain over the longer term.
Among MNCs, we are bullish on companies whose
domestic portfolio is well aligned with its parent
and where risk of conflict with 100% subsidiaries is
limited.
No comments:
Post a Comment