Glaxo SmithKline Pharma - Target price revision - Results affected by NPPP :Centrum

Rating: Sell; Target Price: Rs2,010; CMP: Rs2,492; Downside: 19.3%



Results affected by NPPP



We maintain Sell rating on Glaxo SmithKline Pharma (GSK) with a
revised target price of Rs2,010 (earlier Rs2,130) based on 24xDec’15
EPS of Rs83.7. GSK’s results for Q1CY14 were lower  than our
expectations and were affected by NPPP provisions. Some of GSK’s major
brands witnessed steep price reduction under NPPP. We expect growth
momentum to continue due to price revision of 6.2% for price
controlled products and up to 10% for those outside price control in
April’14. We have revised our CY14 and CY15 EPS estimates downward by
12% and 9% respectively. Key risks to our assumptions include faster
than expected growth of the domestic market and appreciation of rupee
against the dollar, which will bring down the cost of imported raw
materials.

$ Revenue to grow faster: GSK reported 4%YoY decline in revenues to
Rs6.10bn from Rs6.37bn. Revenues were impacted by NPPP. Some of GSK’s
major brands saw sharp reduction in price due to NPPP. However, these
brands witnessed good volume growth. Meanwhile, GSK launched five new
products, Acne-Aid for acne, Avamys for allergic rhinitis, Cardio
Check for determining cholesterol levels, Physiogel lotion for the
skin and Xgeva for bone cancer. We expect these brands to drive future
growth.

$ EBIDTA margin under pressure: GSK’s EBIDTA margin declined by 870bps
to 17.6% from 26.3% mainly due to overall increase in costs and lower
sales growth. The company’s material cost went up by 540bps to 48.3%
from 42.9% due to price reduction of its major brands under NPPP.
Personnel cost was up by 130bps to 13.7% from 12.4%. Other expenses
grew by 210bps to 20.4% from 18.3%. We expect GSK’s margin to improve
from Q2CY14 onwards due to the price revision of most of its products
during April’14.

$ Net profit to be better: GSK’s net profit before EO items declined
by 43% YoY to Rs965mn from Rs1,706mn due to sharp reduction in
margins, lower interest income and higher tax rate.  Its interest
income declined by 42%YoY to 449mn from Rs770mn. The company’s tax
rate went up to 34.9% from 29.1%. We expect improvement in net profit
due to margin improvement from Q2CY14 onwards due to price revision of
its brands in April’14.

$ Recommendation and key risks: We expect the company to perform well
from Q2CY14 onwards due to price revision and new product
introductions. We have revised our EPS estimates for CY14 and CY15
downwards by 12% and 9% respectively. We maintain Sell rating on the
scrip with a revised target price of Rs2,010 based on 24x Dec’15 EPS
of Rs83.7 with a downside of 19.3% from the CMP due to its rich
valuations. Key risks to our assumptions include faster than expected
growth of the domestic market and appreciation of rupee against the
dollar, which will bring down the cost of imported raw materials.



Thanks & Regards

--

Results affected by supply constraints Glaxo SK Pharma’s (GSK) :: Centrum

Results affected by supply constraints
Glaxo SK Pharma’s (GSK) results for Q1CY13 were below our expectations for revenues and margin but in line for net profit. The company reported 1%YoY growth in revenues, 580bps decline in EBIDTA margin and 8%YoY decline in net profit before EO items. Sales during the quarter were affected by supply constraints. GSK is a debt-free company with cash/share of Rs244. We expect the growth momentum to be maintained from new products, vaccines and specialty products. We have lowered our CY13 and CY14 estimates by 7% each. We have changed GSK’s rating from Buy to Neutral with a revised target price of Rs2,364 (based on 24x June’14 EPS of Rs98.5).

Flat growth in core business: GSK reported 1%YoY growth in revenues from Rs6.29bn to Rs6.37bn. The core pharma business was flat during the quarter. Sales during the quarter were impacted by supply constraints at Nashik factory, sites for contract manufacturing and vaccines. The management expects supplies to normalise by the end of Q2CY13.

Overall increase in cost affects margin: GSK’s EBIDTA margin declined by 580bps YoY from 32.1% to 26.3% due to the increase in overall cost. The company’s material cost increased by 120bps from 41.7% to 42.9% of revenues due to the rise in imported raw material cost and depreciating rupee. GSK’s personnel cost grew by 210bps from 10.3% to 12.4% due to flat sales growth. Other expenses increased by 240bps from 15.9% to 18.3% of revenues due to lower sales growth.

GSK Pharma: Book profit :: Business Line

Results affected by manufacturing constraints Glaxo SK Pharma’s (GSK) ::: Centrum

Results affected by manufacturing constraints
Glaxo SK Pharma’s (GSK) results for Q3CY12 were below our expectations.
The company reported 10%YoY growth in revenues, 70bps improvement in
EBIDTA margin and 12%YoY growth in net profit. The growth was driven by
vaccines and specialties segments. However, capacity constraints at its
Nashik facility and one of the suppliers of sterile products affected the results.
GSK is a debt-free company with cash/share of Rs201. We expect the growth
momentum to be maintained from new products introduction. We have
lowered our CY12 and CY13 estimates by 5% and 3% respectively. We have a
Buy rating for the scrip with a revised target price of Rs2,393 (based on 24x
CY13E EPS of Rs99.7).
Moderate growth in core business: GSK reported 10%YoY growth in
revenues from Rs6.15bn to Rs6.76bn. The pharma business grew by 11.0%
during the quarter. The company’s vaccines and specialties segments had
good growth. New products introduction is likely to drive future growth.
Margin improved: GSK’s EBIDTA margin improved by 70bps YoY from 29.8%
to 30.5% due to the reduction in other expenses. The company’s material cost
increased by 260bps from 39.5% to 42.1% of revenues due to the rise in
imported raw material cost with the depreciating rupee. GSK’s personnel cost
increased by 30bps from 10.8% to 11.1%. Other expenses declined by 370bps
from 20.0% to 16.3% of revenues due to rationalization measures

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.

Angel Broking - GlaxoSmithKline Pharma - RU1QCY2012 - Result Updates

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

GlaxoSmithKline Pharma - RU1QCY2012

Glaxo SK Pharma Buy Target Price: Rs2,479 Upside: 16.4%: Centrum

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Glaxo SK Pharma

Buy

Target Price: Rs2,479

CMP: Rs2,130

Upside: 16.4%

Slower growth due to high base

Glaxo SK Pharma (GSK) results were better than our expectations due to better than expected margin and higher other income. GSK reported 3%YoY revenue growth for Q1CY12. The company’s pharma business grew by 7%YoY against the industry growth of 15%. However, its EBIDTA margin declined by 350bps YoY from 35.7% to 32.2% due to sharp increase in material cost. The company’s other income grew by 121%YoY from Rs331mn to Rs733mn due to higher treasury income. GSK’s net profit before EO items was flat at Rs1.86bn. Net profit after EO items grew from Rs5mn to Rs1,229mn. The company’s top 10 brands contribute ~45% of its revenues. We have retained Buy rating for the scrip with a target price of Rs2,479 (based on 24x CY13E EPS of Rs103.3).

m      Revenue growth affected by higher base: During the quarter, total revenues grew by 3%YoY from Rs6.10bn to Rs6.30bn. GSK’s pharma business grew by 7% against the industry growth of 15%YoY due to higher base.

m      Margin under pressure: GSK reported 350bps drop in EBIDTA margin from 35.7% to 32.2% due to sharp increase in imported material cost due to the depreciation of rupee. However, the company’s EBIDTA margin has shown improvement of 70bps on QoQ basis from 31.5% to 32.2%.

m      Higher treasury income: GSK’s other income was up from Rs331mn to Rs733mn due to higher treasury income. The cash per share was Rs254 at the end of Dec’11. The company’s net profit before EO items was flat at Rs1.86bn. Net profit after EO items (Rs628mn from rationalisation of Thane mfg. facility) enhanced from Rs5mn to Rs1,299mn.

m      New products to drive growth: During CY11, GSK introduced the following new products: Votrient (anti-cancer), Synflorix (pneumonia vaccine) and Revolade (platelet enhancer). These patented products were introduced at lower than the global prices and are likely to drive future growth.

m      Other developments: GSK’s vaccine business grew by 58%YoY and contributed ~11% to the revenues in CY11. The company has introduced Synflorix-vaccine for treating pneumonia in children in Q4CY11. Synflorix has garnered 36% MS in its category. The vaccine is priced at Rs2,000 per dose against Rs3,800 per dose of Prevenar 13 of Wyeth.

m      Attractive valuations, Reiterate Buy: We expect GSK to report improved performance due to the launch of new products and good growth of existing products. We have revised the EPS estimates downwards by 1% for CY12 and 2% for CY13. At the CMP of Rs2130, the stock trades at 24.3x CY12E EPS of Rs87.6 and 20.6x CY13E EPS of Rs103.3. We retain Buy rating for the scrip with a target price of Rs2479 (based on 24x CY13 earnings).

-- 

GlaxoSmithKline Pharma :Target Price: ` 2174 Sell: Dolat Capital

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Patented Growth...!!!
GSK Pharma is our preferred pick in the MNC Pharma space on the back of parents’ strong commitment towards
introducing high value patented products through Glaxo India in the domestic market. Lower dependency on
price controlled products, new product launches with minimal generic competition and moderate pricing ensures
revenue visibility. Healthy cash per share and a reasonable dividend yield, serves as a classic addition to the
defensive portfolio. The impact of the proposed draft National Pharmaceutical Pricing Policy 2011 (widens scope
of price control) is an overhang on valuations.

GlaxoSmithKline Pharmaceuticals: TP: INR2,272 Buy ::Motilal Oswal

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).

GSK Pharma::Largely in-line with estimates :PINC,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Largely in-line with estimates
GSK Pharma’s Q4CY11 results were largely in-line with our
estimates. The net sales grew by 15.4% YoY to Rs5.6bn on back
of revival in the anti-infective and mass markets. The company
also witnessed strong traction in speciality and vaccine segment.
The gross margins contracted by 372bps YoY due to escalation in
the raw material costs. However, EBITDA margins were in-line
with our estimates at 31.5%, as the lower SG&A costs offset the
impact of contracted gross margins. Consequently, the net profit
came in at Rs1.4bn, growth of 20.5% YoY.
We maintain our ‘SELL’ recommendation on back of rich
valuations and the overhang of the proposed NPPP-2011. We
value the company at 22x one year forward earnings with a
Target Price of Rs1,880.
Revival in key segments boost growth
GSK Pharma reported net sales of Rs5.6bn up 15.4%YoY, in- line with our
estimates, backed by the revival in the anti-infective and mass market
segments. Further, the company also launched Synflorix-vaccine against
invasive pneumococcal disease during the quarter. The core
pharmaceutical segment clocked growth of 18.2% YoY.
EBITDA margins expand on lower SG&A
The gross margins contracted during the quarter due to escalation in the
raw material costs. However, the impact was offset by the lower SG&A
expense, translating to EBITDA margins of 31.5%, in-line with our
estimates. Subsequently, the reported recurring net profit came in at
Rs1.4bn, growth of 20.5% YoY.
NPPP-2011 remains an overhang
The proposed NPPP-2011 policy, which entails to bring more than 60%
of the domestic drugs under price control on back of market based
pricing, still remains unclear and would negatively impact GSK Pharma.
We expect key brands such as Augmentin and Calpol to be impacted by
the policy.
VALUATIONS AND RECOMMENDATION
The stock is trading at an expensive valuation of 25.3x CY12E and 22.3x
CY13E earnings. We maintain our ‘SELL’ recommendation on the stock
on back of rich valuations and the overhang of the proposed NPPP-2011.
We value the company at 22x one year forward earnings with a Target
Price of Rs1,880.

PDF link - GSK Pharma, voltas, India strategy:: Kotak Securities

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily17022012.pdf


Results
GlaxoSmithkline Pharmaceuticals: Lower margin leads to PAT miss

Results, Change in Reco
Voltas: Upgrade on cash flows, inflows and recovery even as challenges remain


Strategy
Strategy: Another ho-hum quarter; expectations of earnings upgrade cycle
premature

GSK Pharma, :: 3QFY12 preview :: Nomura research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Expect growth to accelerate in 4QCY11 on very low growth recorded in the
previous quarter
We note that the December quarter is seasonally the weakest quarter for the company.
We pencil in 11.5% y-y growth in net sales for Glaxo in 4QCY11. This follows a very
weak 4.4% growth y-y recorded in 3QCY11, the lowest in the past 14 quarters. A
moderate pick-up in anti-infective sales and other acute therapies would aid growth, in
our view. It appears that the anti-infective segment had a late take-off this year. This may
have caused the depression of growth in previous quarter, and thus could be expected to
accelerate growth in current quarter. As per AIOCD AWACS data, in the months of
October and November 2011 the company recorded growth of 11.9% and 22.8%,
respectively.
We build in a 119bps decline in EBITDA margins y-y
The EBITDA margin has been under pressure through the year. For the nine months
ended September 2011, EBITDA margins were down 393bps y-y. We project a 90bps
decline in EBITDA margins y-y and a 70bps improvement q-q following significant drop in
3QCY11. We expect rising volumes to help boost margins sequentially. However, we
note that historically 4Q margins have been lower than 3Q.
We have not projected the actuarial gains explicitly. Given the rise in yields, we expect
some gains to be booked on that count.

Glaxosmithkline Pharmaceutical (GLAX.BO) Big Miss – Pressure on Valuations?  Citi research

Please Share:: 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

GlaxoSmithkline Pharmaceuticals: Shockingly poor results :: Kotak Sec

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


GlaxoSmithkline Pharmaceuticals (GLXO)
Pharmaceuticals
Shockingly poor results. PAT was 20% below our estimate marked by (1) poor sales
growth of 4% with core pharma growth of 6.5%, lowest in the past 2 years, (2) severe
margin erosion with EBITDA margin at 30% due to poor sales growth, low gross
margin and high cost base, and (3) if not for higher interest income versus our
estimates, PAT miss would have been higher. We revise our 2012E EPS down by 6%
and expect sales growth at 12% (YTD sales growth of 9.5%) in 2012E with margin at
34% (YTD margin at 33.8%). Besides high dividend payout (60% of PAT), we can’t
think of any reason to hold this stock at these levels. We downgrade to SELL (was
REDUCE) with PT at Rs1,930 (from Rs2,220), 23X core EPS (25X earlier).

GlaxoSmithKline Pharmaceutical::Takeaways Motilal Oswal Annual Global Investor Conferences

Please Share:: 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).

GlaxoSmithkline Pharmaceuticals (a): Sales growth continues to be weak::Kotak Sec,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


GlaxoSmithkline Pharmaceuticals (GLXO)
Pharmaceuticals
Sales growth continues to be weak. PAT was 6% below our estimate marked by (1)
poor sales growth of 13% on low base (9% growth in 2Q2011) and (2) lower margin,
down yoy and qoq to 35.5%. We cut our 2011E sales growth to 14% from 15.5%
earlier, lower than guidance at AGM and reduce our 2011-12E EPS by 3%. Increase in
costs on account of ramp-up in field force combined with poor sales growth is likely to
result in slightly lower operating margin in 2011E. High dividend payout ratio is the sole
justification to hold this stock at these levels, maintain REDUCE with PT at Rs2,220
(from Rs2,300) (25X core EPS).


Sales at Rs5.6 bn grow 13% yoy, lower than our estimate of 15.5%
Although sales growth picked up qoq to 13% in 2Q2011 from 11% in 1Q2011, we remain
unimpressed as (1) this growth was on a low base of last year—9% growth in 2Q2010, (2) though
pharma sales growth increased qoq to 14% in 2Q2011 versus 12.4% in 1Q2011, there is no pickup
in growth versus 14% pharma sales growth reported in 2010 and (3) YTD sales growth at 12%
is lower than 15% growth talked about at the AGM.
PAT excluding exceptional cost was at Rs1.5 bn, 6% lower than our estimate
EBITDA margin declined 60 bps qoq and 300 bps yoy to 35.5%, 180 bps lower than our estimate
due to (1) poor sales growth and (2) sharp increase in staff cost and other expenses at 17-22%.
Staff costs peak in 2Q due to annual bonuses as expected and we expect reduction in same in
2H2011E. Gross margin was down 100 bps yoy to 64%.
We reduce our 2011-12E EPS by 3%
At its AGM, Glaxo guided for 15% sales growth in 2011E and expects profit to grow in line with
sales growth. We cut our 2011E sales growth assumption to 14% from 15.5% earlier (12%
reported in 1H2011) and reduce our margin assumption from flat margin to 50 bps margin decline
in 2011E as increase in costs on account of ramp-up in field force combined with poor sales
growth is likely to result in lower operating margin in 2011E. Glaxo increased its sales force by 550
in 1Q2011 and intends to add another 200 in taking the total to 3,600 by end-2011E. This
expansion is part of its rural marketing initiative ‘Reach’.
We maintain REDUCE due to stretched valuations (stock ex cash/share trading at 24X 2012E EPS)
We reduce PT to Rs2,220— (1) business value/share of Rs1,920 (25X 2012E core 2012E EPS) and
(2) cash/share of Rs300. Plans for use of surplus cash for brand acquisition remain uncertain,
although dividend payout increased to 60% (from 50%) in 2010.

GSK India : 2QCY11 results : CLSA

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


2QCY11 results
GSK India’s net sales growth at 12.4% was reasonably good considering weaker
domestic growth for most Indian pharma names especially those with large
proportion of revenues coming from acute therapy segments. Considering,
company’s focus on expanding in branded generics and enhancing marketing
efforts, margins have come down both at gross and Ebitda levels. This is likely to
sustain as the company added personnel in 1Q. Over coming 3-5 years, we expect
more branded generics launches from the company to boost growth rates from
current below market average rate.
Sales growth reasonably good considering competitive pressures
GSK India’s 2QCY11 sales grew 12.4% YoY with double digit growth in vaccines (14%)
and mass specialty segments. The management earlier guided for growth of 12-14%
approaching market average. Earlier in 1Q, the company introduced branded generics
of J&J’s Ultracet and a sunscreen gel (Ansolar) from Stiefel’s portfolio. In 2Q, it has
launched Votrient and Revolade where it received marketing approvals in previous
quarter. GSK India introduced branded generics in key therapy areas like
cardiovascular, pain management and anti-infectives during CY10. The manufacturing
has been sourced to local Indian players like Hetero drugs for atorvastatin while GSK
focuses on marketing aspect. The company has strengthened its field force to c.
3,000+ now with further addition of sales personnel during 2QCY11 to cater to new
product introductions.
Margins decline on account of aggressive branded generic strategy
GSK’s gross and ebitda margins declined due to branded generic strategy being
followed by the company where the company has been launching products at
aggressive pricing. Ebitda margins declined 308bps to 33.4% led by higher spend on
marketing with staff costs rising by 22% YoY. The margin pressure is likely to continue
for a while as the company plans to continue adding sales force through the year.
However, as the sales force expansion gets in to the base and productivity of newly
hired personnel improves over coming quarters, margins should start improving. Apart
from 5-6 branded generics, some of the innovative products that they intend to launch
during CY11 are Synflorix, Infanrix-Hexa, and dermatology products (Stiefel range).
Rich valuations though potential to enhance growth rates
Over coming years, we expect GSK India should be able to enhance it growth rate to
higher than market average levels if it accelerates launches of branded generic drugs
along with patented and in-licensed products. We, however, maintain U-PF rating
considering rich valuations and believe that market share gains would be gradual and a
lot more effort would be required on enhancing product basket

GSK Pharmaceuticals - Field force expansion hits margins :: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


GSK Pharmaceuticals
Field force expansion hits margins
Event
 2Q CY11 results below our estimates: GSK reported 2Q CY11 results, with
net sales of Rs5.6bn (up 12.8% YoY) and adjusted PAT of Rs1.5bn (up 8.6%
YoY) below our estimates. The EBITDA margin declined by 290bps to 34.7%
(vs our estimate of 35.5%) due to higher employee costs from field force
expansion. We maintain our Neutral rating and TP of Rs2,210.
Impact
 Field force expansion hits margins: Net sales grew by 12.8% YoY to
Rs5.6bn and PAT grew by 8.6% YoY to Rs1.5bn. Sales of the core
pharmaceuticals and vaccine business grew by 14%. GSK grew in line with
the industry in the quarter. The EBITDA margin declined by 290bps to 34.7%
due to higher employee costs from field force expansion. GSK continued its
planned investments in field force expansion for the year.
 Vaccines, mass specialty and dermatologicals leading the way:
Vaccines, mass specialty and dermatologicals businesses registered strong
growth, driven by the launch of branded generics, increasing the extension of
rural coverage and focused efforts in the hospital segment. Despite the base
effect, vaccines have shown strong market competitive growth. Vaccines
currently contribute ~13% of the top line. GSK launched a branded generic
and a product through Stiefel – dermatology products – during the quarter.
GSK has a broad product basket covering ~90% of the Indian derma market
(~50% before the Stiefel acquisition). GSK also launched two original
products from the GSK pipeline in oncology and haematology.
 Leeway to pursue strategic alternatives: With ~Rs18.5bn in net cash and a
negative WC, GSK has one of the strongest balance sheets in the sector. This
provides much requisite leeway to pursue strategic alternatives. The company
remains open to acquisitions of assets at a reasonable valuation that would
help strengthen its India formulation business.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs2,210.00 based on a PER methodology.
 Catalyst: Value-accretive acquisitions.
Action and recommendation
 We value GSK at a PER of 23x CY12E, a 20% premium to the sector average
PER, given the stable nature of GSK's earnings profile, its high-return ratios,
free cash-flow generation and healthy dividend yield support.
 Although we believe in the long-term fundamentals of GSK, the current price
leaves little valuation buffer, in our view. We recommend adding to positions
on weakness and maintain our Neutral rating with a target price of Rs2,210.

GSK Pharma - Sales growth better than peers; margins impacted by field force expansion:: Credit Suisse,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


● Jun-11 results were weak with a 2% sales miss and a 9% EBITDA
miss. However, its lower margins are not so alarming as gross
margins continue to remain strong (Figure 3) and the miss was
driven by high personnel cost (+20% QoQ)—likely related to field
force increase of 400 medical reps planned for CY11.
● Pharma sales growth of 13.8% was better than peers despite antiinfectives
constituting 26% of the portfolio. The low base also
helped as the Jun-10 quarter had supply issues for vaccines.
● AIOCD data shows that the anti-infectives portfolio is
concentrated, with top five molecules accounting for 23% of total
sales (Figure 2). Growth in anti-infectives was 10% for GSK while
rest of the portfolio grew by 15%.
● GSK’s valuation has come off from the high of 30x to 25x oneyear
forward P/E or 23.6x CY12E (Figure 4). We believe this has
been driven by: (1) concerns about slowing growth in the antiinfectives
therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics
segment. Our estimates are under review for GSK.

Sales growth better than peers but helped by low base
Overall sales growth for GSK in 2Q11 was 12.8%: its pharma
business (accounting for 93% of total revenues) grew 13.8%, while
revenues from the rest of its businesses were flat. The growth was
strong compared to several of its peers despite having majority of the
portfolio as acute and with anti-infectives accounting for ~26% the
total sales (AIOCD). The growth was also helped by low base as the
same quarter last year had supply issues for vaccines.
Anti-infective portfolio is concentrated and grew by 10%
Anti-infectives account for 26% of GSK’s sales and AIOCD data shows
that top five molecules in anti-infectives account for 23% of pharma
division sales. Figure 2 shows that overall on these molecules, GSK has
been growing slower than the industry average, mainly due to slower
volume growth than the industry (price change by GSK has been in line
with the industry); however, unlike peers’ growth in anti-infectives, it is at
least good at 10%, while rest of its portfolio grew by 15%.


Margins impacted by high personnel cost
EBITDA margins of 33.3% for the quarter were lower than expected,
although still within CY11 guidance of 33-35%. Although gross
margins remained strong at 63%, EBITDA margins were impacted by
higher personnel cost, which increased 20% QoQ (while sales
declined 7% QoQ). The increase in personnel cost was likely related
to field force increase of 400 medical reps planned for CY11.



GSK’s valuation has come off from 30x to 25x one-year forward P/E.
We believe this is driven by: (1) concerns about slowing growth in the
anti-infectives therapy in the domestic market and (2) the transition
phase of GSK while it strengthens its presence in the chronics segment.

GlaxoSmithKline Pharma Results below expectations - Maintain Hold :Emkay

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

GlaxoSmithKline Pharma

Results below expectations - Maintain Hold

HOLD

CMP: Rs2,122                                        Target Price: Rs2,161

---

n     GSK Pharma Q2CY11 results were below expectations with a) Revenues at Rs5.7bn (up 13% YoY) b) EBITDA at Rs2bn (up 4% YoY) and c) APAT at Rs1.5bn (up 9% YoY)

n     Revenue growth was driven by 14% growth in the domestic formulations business led by anti-infective, dermatology, vaccines & 4 new launches (2 in oncology segment)

n     EBITDA margins declined 295bps to 34.7%, due to 133bps contraction in gross margins & 100bps increase in staff cost

n     Maintain Hold on the stock with a target price of Rs2,161