Growth driven by vaccines and derma products -Glaxo SK Pharma’s (GSK) :: Centrum

Growth driven by vaccines and derma products
Glaxo SK Pharma’s (GSK) results for Q2CY12 were in line with our
expectations. The company reported 15%YoY growth in revenues,
260bps decline in EBIDTA margin and 14%YoY growth in net profit.
The growth was driven by vaccines and derma segments, which grew
by ~25% each. GSK is a debt-free company with cash/share of Rs201.
We expect the growth momentum to be maintained due to good
growth from new products introduction. We have a Buy rating for the
scrip with a target price of Rs2,479 (based on 24x CY13E EPS of
Rs103.3).
Strong growth in core business: GSK reported 15%YoY growth in revenues
from Rs5.74bn to Rs6.62bn due to 16.3% growth in its core business. The
company’s vaccines and dermatology segments grew by ~25% each and are
expected to grow further due to new products introduction.
Margin declined due to currency effect: GSK’s EBIDTA margin declined by
260bps YoY from 34.7% to 32.1% due to sharp rise in the material cost. The
company’s material cost increased by 500bps from 35.9% to 40.9% of
revenues due to the rise in imported raw material cost and depreciating
rupee. GSK’s personnel cost declined by 160bps from 13.5% to 11.9% due to
higher sales growth. Other expenses declined by 80bps from 15.8% to 15.0%
of revenues.

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Strong growth in vaccines and derma segments: GSK reported strong
growth of ~25% each in the vaccines and derma segments. The company
markets well-known brands Betnesol, Betnovate-C, Betnovate-N and
Neosporin in the derma segment.
Major brands growing well: As per IMS MAT-June’12 data, GSK’s major
brands reported good growth namely: Augmentin 17.4%, Calpol 13.9%,
Betnovate-C 14.9%, Betnovate-N 16.1% and Eltroxin 16.8%. These brands are
likely to drive future growth.
New product introduction: GSK launched the following new products during
the quarter: Uricostat for gout, Hycamtin for advanced cancer, Seretide
metered dose inhaler (MDI) and Volibris for pulmonary hypertension. These
products are likely to become future growth drivers.
Valuations: We expect GSK to report EPS of Rs87.6 for CY12 and Rs103.3 for
CY13. At the CMP of Rs2,100, the stock trades at 24.0x CY12 and 20.3x CY13
earnings. We have a Buy rating for the scrip with a target price of Rs2,479
(based on 24x CY13E EPS of Rs103.3) with 18.0% upside over CMP.