GlaxoSmithKline Consumer: 3QFY15 ahead of expectations. Upgrade to ADD ::Kotak Sec, report

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3QFY15 ahead of expectations. Upgrade to ADD. We upgrade GSK-CH to ADD from REDUCE noting inexpensive relative valuations post a long phase of underperforming the sector. The company reported a healthy quarter beating our revenue and EBITDA estimates by 5% each. We estimate 17% EPS CAGR over FY2015-17E despite pressure from excise increase. We expect volume growth acceleration and RM tailwinds to drive this growth. Our revised target price of `6,100 (from `5,800) implies a PER of 32X December 2016E EPS

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GSK Consumer - Volumes Stage a Healthy Revival; Result Update Q3FY15 :: Edelweiss

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NOMURA - GSK Consumer

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GSK Consumer- Leader in health food drinks market… :: ICICI Securities, pdf link

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Leader in health food drinks market…
We met the management of GSK Consumer Healthcare (GSKCH) to
understand the current business environment, future growth
opportunities and its strategy to overcome the current challenge of
slowing growth in its base business. GSKCH is the largest company in the
malt based beverage market with brands like Horlicks, Boost, Maltova and
Viva. The company is the market leader in health food drinks (HFD) and
has a value market share of 57.5% and volume market share of 65.1%
(June 2014). GSKCH generates 94% of revenues from malt/cereal based
beverages and 6% from foods. The company generated | 168.1 crore
from auxiliary service income (commission for Crocin, Iodex, Eno &
Sensodyne), which contributes 4-5% to its PBT. In 2009-10, the company
entered the foods business with the introduction of premium, high
margin biscuits & cookies market, instant noodles and snack bars. GSKCH
spends ~16% of its sales on advertisement and promotion expenses, of
which ~30% is used for promotion and ~70% for advertisement. The
company witnessed 20.4% CAGR sales growth in CY08-FY14 (FY14
numbers adjusted for 12 months) with 24.6% CAGR in EBITDA in the
same period.
Dominant play in HFD
With brands like Horlicks, Boost, Viva & Maltova, GSKCH dominates the
HFD market. These brands together command ~65% market share in
volume terms. Though volume growth of base brand Horlicks (white HFD)
saw a significant slowdown, growth in new variants like Junior Horlicks,
Women’s Horlicks, Mother’s Horlicks and Horlicks lite are helping GSKCH
gain market share in MFD business. In brown HFD, Boost (that commands
13-15% market share) is facing stiff competition from Complan and
Cadbury’s Bournvita. Though the foods business contributes 5% to
revenues, it has been growing at more than 20% in last 10 quarters.
Increasing penetration, premiumisation to drive growth
With low penetration (~25%) of HFD in India, there is immense
opportunity to grow the market by penetrating into semi-urban and rural
areas. The company derives 26% of its revenues from rural and 74% from
urban India. With direct reach of 8 lakh retailers and indirect reach of 2.5
million retailers, it has an effective distribution network. It plans to
increase its direct reach to 8.5 lakh retailers and indirect reach of 3 million
retailers by the end of 2015. Similarly, it is taking an initiative towards
increasing its rural reach to 22000 villages by the end of 2014 and 40000
by the end of 2016 from the current 10000. Though initiatives towards
premium products have not been a success, the introduction of sachets
has helped the company to penetrate rural areas.

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Technical 7th Oct: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

Technical: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

GSK Consumer Healthcare - SELL :: Business Line

Strong results GSK-CH :: Centrum

Strong results
GSK-CH posted Q3CY12 results ahead of our expectations with topline
growth at 15.2% YoY on the back of 6% growth in domestic volume,
35% in the non-MFD segment, 3% in exports and 8% decline in CSD
sales. Gross margin expanded by 62bps which helped boost operating
profit by 75bps to 19.9%. Higher business auxiliary income too
boosted PAT which was up by 25%YoY. Maintain BUY.
Q3CY13 results ahead of expectations: Net sales for the company was ahead of
expectations with 15.2% revenue growth at Rs8577mn led by 6% growth in
volume and 9% in price. Exports grew marginally by 3%. Operating profit was up
by 19.7% at Rs1706mn on the back of gross margin expansion. Auxiliary income
was up by 24% YoY to Rs280mn. PAT was up by 25% and 10% above our estimates
at Rs1286mn.
MFD portfolio growing strong: Domestic MFD portfolio grew by 6% in volume
on the back of 16% (4.5% vol) in Horlicks and 22% (8.5% vol) in Boost sales. The
company increased prices by 5.5% in mid-June across products which helped in
value growth. CSD segment continues to be under pressure with 8% decline in
revenues which had 1.5% negative volume impact. It continues to invest in North,
West India and rural markets for future growth and the current distribution outlets
stand at 7.5lakhs. Sachet sales grew by 45% and formed 5% of total sales and
drove rural growth. Management believes that the premium segment which
accounts for 10% of the industry is growing at a faster clip and the company will
consider entering this segment at a later stage.

GlaxoSmithKline Consumer Healthcare: Book profits ::Business Line

GSK Consumer Healthcare :From strength to strength :Centrum

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From strength to strength
GSKCH’s undivided focus, positioning and investment on the
health platform are expected to offer benefits in near to long
term as these have contributed to the company’s re-rating in
the past couple of years. Entry into new high growth
categories along with maintaining volume growth in its core
HFD (health food drink) segment is expected to boost
profitability. Given the strong balance sheet, high free cash
flows along with increasing dividend payout & strong
earnings visibility GSKCH is one of our preferred bets in the
FMCG space. We initiate coverage with a BUY rating.
􀂁 Leadership in HFD category: GSK consumer is undisputed
leader in the Rs35bn Indian HFD category having ~70%
market share across its brands, Horlicks, Boost, Viva and
Maltova. This segment accounts for 94% of the company’s
revenues and has grown at a strong 18.5% CAGR over CY07-
11 on the back of double digit volume growth.
􀂁 Multiple drivers for volume growth: Over the last few years
the company has grown at a healthy volume growth above
9% coupled with 4-6% price increase. We expect the
company to achieve double digit volume growth on the back
of increase in penetration (currently only 22% pan India),
strong focus on variants (23% of sales in 2011 from 17% in
2007) and pricing (small SKUs contribute only ~4% of sales),
increase in distribution coupled with growing sales in North
and West India (10% of sales).
􀂁 Diversification into new categories to boost growth: In
order to reduce its dependence on HFD category, the
company is focussing aggressively on new launches in the
non-HFD portfolio which has now become 7% of sales from
3% four years ago. It has made Horlicks the mother brand and
ventured into new product categories such as biscuits,
instant noodles, health bars, sports drinks and breakfast oats.
Growth rates and opportunity in these products are very high.
􀂁 High earnings visibility: We expect the company to post
16.5% revenue CAGR over CY11-13E on the back of healthy
double digit volume growth. Despite challenges of increasing
A&P expenses and raw material cost inflation, it has been
able to maintain its margins in the ~15-17% range on the
back of constant price hikes coupled with operating leverage
in employee cost, manufacturing cost and selling &
distribution costs. Hence we expect profitability to grow at a
CAGR of 18.5% over CY11-13E.
􀂁 Strong balance sheet: With negative working capital along
with low capex requirement (Rs3.5bn) over next couple of
years, the company has over Rs10.8bn in cash in CY11 which
is expected to increase to Rs14.4bn by CY13E translating into
cash of Rs343/share. We expect the company to steadily
increase its dividend payout which has been the case in the
past couple of years and in CY11 it was 41%.
􀂁 Valuations: The stock is currently trading at 26.5x and 21.9x
CY12E and CY13E EPS of Rs98.2 and 118.5 respectively. We
value the stock at 25x FY13E EPS in-line with its 1- year
average multiple. We initiate coverage on the stock with a
BUY rating and target price of Rs2963 (14% upside).
􀂁 Risks: i) Increase in raw material cost; ii) Competition getting
aggressive in the HFD segment and iii) Not being able to
scale up new launches.

Buy GlaxoSmithKline Consumer Healthcare: ShareKhan

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Key points
CY2011 performance – high teens growth: Glaxosmithkline Consumer
Healthcare Ltd (GSK) posted a high-teen growth in its top line and bottom line
during the year. The top line growth of 16.5% year on year (YoY) was driven by
a mix of volume and value. The malted food drinks (MFD) segment (94% of total
revenues) grew by 16.3% YoY, driven by an around 9% YoY volume growth.
Horlicks, which is the company’s flagship brand, grew by around 18% during the
year. The biscuits portfolio had done exceptionally well with a growth of 30% in
CY2011. Though the operating profit margin (OPM) declined by 51bps YoY (to
15.8%), the strong growth in the business’ auxiliary income and interest income
resulted in an 18.5% YoY growth in the bottom line.
Cash conversion cycle improved further: The company’s cash conversion cycle
improved from negative 89 days in CY2010 to negative 100 days in CY2011,
indicating an improvement in working capital management. The creditor days
have increased from around 139 days in CY2010 to 154 days in CY2011. Hence
despite an above 40% growth in loans and advances in the last couple of years,
the company’s ability to generate cash from operating activities has remained
strong. We expect the cash conversion cycle to further improve in the coming
years.
Return ratios remain strong: The return ratios continued to improve with the
return on net worth (RoNW) and return on capital employed (RoCE) up from
32.2% and 48.7% respectively in CY2010 to 33.8% and 51.7% in CY2011.
Cheery dividend player: The company is known to be a cheery dividend payer
in the fast moving consumer goods (FMCG) space. As anticipated the company
has paid a dividend of Rs35 per share in CY2011 (350% of face value). The
dividend payout ratio stood at 41% in CY2011, which has improved in comparison
to its average dividend payout ratio of around 33%. With the profit after tax
(PAT) growth likely to sustain at close to 20%, we expect the dividend pay out
ratio to sustain at around 40% in the coming years.

GSK Consumer -16% volume growth in Horlicks, Retain Accumulate:: Emkay

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¾ One-offs in A&P spends and Tax outgo impact performance,
APAT growth curtailed to 11% yoy to Rs591 mn
¾ Horlicks bounces back with volume growth of 16% yoy, but
MFD volume growth of 12% yoy…
¾ GSK has raised product prices by 8% on Boost portfolio
effective December 2011 and 4% on Horlicks portfolio
effective January 2012
¾ Maintain Earnings estimates for CY12E, Remains preferred
play within 3 themes in Consumer sector, Maintain
‘ACCUMULATE’ with target price of Rs 2,743
One-offs in A&P spends and Tax outgo impact performance, APAT
growth curtailed to 11% yoy to Rs591 mn
Performance for Q4CY11 was largely impacted by abnormal rise in expenditure (tax
outgo and A&P spends), despite healthy revenue performance. Revenues grew 18.6%
yoy to Rs 6.0 bn, meeting our expectations. Revenue growth was led by blended
volume growth of 11%, balance led by price increases and premiumization. However,
240 bps yoy increases in A&P spends keeps margins under pressure. This was led by
(1) re-launch of Boost during the quarter and (2) launch of Horlicks Oats in the quarter.
Hence, Ebidta margin declined 130 bps yoy to 10.2%, ahead of our expectation of
11.3% and Ebidta growth was curtailed to 5.5% yoy to Rs616 mn. Further, higher tax
outgo on prior period years curtailed APAT growth to 11% yoy to Rs591 mn, below our
expectation of Rs638 mn.
Horlicks bounces back with volume growth of 16% yoy, but MFD volume
growth of 12% yoy…
GSK Consumer reported an up tick in the Horlicks volume growth to 16% yoy during this
quarter versus 10% in Q3CY11. However, Boost recorded volume growth of 2% yoy,
lower then 6% yoy in Q3CY11. But, MFD volume growth at 12% yoy was in line with
expectations. This coupled with strong volume growth in exports and biscuits portfolio,
yielded blended volume growth of 11% yoy, in line with estimates. The contribution of
non-MFD portfolio was 7.0% of sales in the quarter.
Price hikes taken on MFD portfolio, Competition has followed suit….
GSK has raised product prices by 8% on Boost portfolio effective December 2011 and
4% on Horlicks portfolio effective January 2012. Last pricing actions were undertaken
on Horlicks portfolio in June 2011, average price rise were 7% therein. Hence, weighted
average price increase of 6% to flow in CY12E, resulting in strong value growth in MFD
portfolio.

Glaxo SmithKline Consumer Healthcare -- Limited upside:: Standard Chartered Research,

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 We downgrade GSKCH to In-Line on the back of rich valuations (trades at 25x CY13E) and the poor performance of its non-core business.
 We are disappointed with increased investments in new categories as commensurate returns/ success remain low
 4Q CY11 − Sales growth was in line with expectations at 18.6%, with steady volume growth of 11%.
 EBITDA growth was moderate at 13% due to higher adspend (up 27.1%) and other expenses (up 25.1% yoy).
 Headline net profit growth was lower at 10.7%, but adjusting for prior period expenses net profit grew 23% yoy.

Result Update: Marico, Manappuram General Finance, Tamilnadu Newsprint, Jubilant Life Sciences, GSK Consumer, KSK Energy:: Emkay

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Result Update

Marico Reco: ACCUMULATE CMP: Rs 163 Target Price: Rs 172 No Hiccups, Hereon, Maintain ACCUMULATE ·      Upbeat volume growth drives performance in Q3FY12; Revenue +29.4% yoy to Rs10.6 bn, Ebidta +22.1% yoy Rs1.2 bn and APAT +21% yoy Rs841 mn ·      Domestic business registered volume growth of 13% yoy and International business registered organic growth of 16% yoy ·      Shares optimistic outlook, Volume growth of 10-12% yoy in FY13E; Parachute at 8-10%, Saffola 14-16% and Hair Oils 20% ·      Forecast strong earnings performance in ensuing quarter, Retain FY13E earnings at Rs7.5/Share. Maintain ACCUMULATE rating with target price of Rs172/Share

Manappuram General Finance Reco: HOLD CMP: Rs 59 Target Price: Rs 65 Results inline; price led growth a concern ·      MAGFIL results inline with expectation with NII at Rs4.3bn and net profit at Rs1.6bn. The growth driven by strong advance growth and broadly stable NIM’s at 13% ·      AUM growth strong at 90%yoy supported by 63%yoy increase in customer base in commensurate with 53%yoy increase in branch network ·      Despite aggressive additions of 1345 branches over last  five quarters, the gold stock additions have seen consistent decline from 9.4MT/qtr to 4.3MT/qtr ·      MAGFIL continue to grow at a healthy pace, however sustainability of the same amid rising competition and any regulatory change in NPA recognition to 90dpd is under ques

Tamilnadu Newsprint Reco: ACCUMULATE CMP: Rs 93 Target Price: Rs 110 Disappointing results; trim estimates ·      Q3FY12 results disappointed due to lower sales volumes & higher input cost. Sales increased by 13%yoy  to Rs 3.1 bn. EBITDA margin declined by 700bps yoy/900bps qoq to 19.1% ·      TNPL reported adjusted loss of Rs 177mn against est of profit of Rs 22mn. APAT has been adjusted for EO gain of Rs 1bn (tax adjusted Rs 812mn) on forward currency contract. ·      Inventory builtup to the tune of ~60,000mt is a key concern which is likely to put pressure on near term realisations and EBITDA margins ·      Due to weak Q3FY12 results we have reduced our FY EPS est to Rs 1.3 (from Rs 9.1). On back of compelling valuations (40% discount to BV) we maintain Accumulate

Jubilant Life Sciences Reco: BUY CMP: Rs 177 Target Price: Rs 348 Debt remains a concern – Maintain Buy ·      Q3FY12 Results – Revenues at Rs10.9bn (up 25%YoY), b) EBITDA at Rs2.1bn (up 58% YoY) and c) APAT at Rs771mn (up 82% YoY) ·      Top-line growth and EBITDA margin expansion was led by strong traction in Generic business & favorable impact of INR depreciation, however debt increased by Rs4bn QoQ ·      Going forward, new capacity additions in pyridine & vitamin business, momentum in Cadista and +ve impact of currency will boost the top-line and the bottom-line ·      Strengthening INR will ease out debt concerns in next quarter – Maintain Buy with a target price of Rs348 (10xFY13E EV/EBITDA)

GSK Consumer Reco: ACCUMULATE CMP: Rs 2,637 Target Price: Rs 2,743 16% volume growth in Horlicks, Retain Accumulate ·      One-offs in A&P spends and Tax outgo impact performance, APAT growth curtailed to 11% yoy to Rs591 mn ·      Horlicks bounces back with volume growth of 16% yoy, but MFD volume growth of 12% yoy… ·      GSK has raised product prices by 8% on Boost portfolio effective December 2011 and 4% on Horlicks portfolio effective January 2012 ·      Maintain Earnings estimates for CY12E, Remains preferred play within 3 themes in Consumer sector, Maintain ‘ACCUMULATE’ with target price of Rs 2,743

KSK Energy Reco: HOLD CMP: Rs 72 Target Price: Rs 75 Improvement in coal supplies; maintain hold ·      3Q12 PAT of Rs755mn above exp. driven by i) fuel cost (-7% qoq) and ii) other income (+57% qoq). Linkage coal supply better for Wardha/Arasmeta I. Issues continued with Arasmeta II (no fuel) and Sitapuram ·      Co. confident of getting 70-75% linkage coal for Wardha in 4Q vs 60% in 3Q, resulting in fuel cost of Rs2.4-2.5/unit vs 3Q at Rs2.9/unit. Have factored Rs2.9/unit fuel cost in FY13 for Wardha, would wait for 4Q to change our assumption ·      Open access received for Wardha, co. in process of signing BPTA. Captive power supplies to start from Mar12. PPAs at 10-20% discount to ind. grid power rates in Maharashtra ·      Were expecting run up post 2Q, on attractive valuations & better 3Q. But, CMP prices in (1) ~50-60% linkage coal for Wardha & (2) Mahanadi I. Maintain Hold; Upside triggers - (1) 60% + linkage coal for Wardha & (2) alternative block

GSK Consumer - Cashing in on growth DNA; Buy :: Edelweiss

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GSK Consumer (SKB IN, INR 2,540, Buy)

GSK Consumer’s (GSK) strong brand equity in under-penetrated and high- growth health food drinks (HFD) category renders it a lucrative play in the consumer goods space. Its sustained dominance in the segment amidst intense competition is primarily due to undivided focus on product line, continuous innovation and expansion of distribution network. We are cautiously optimistic about GSK’s strategy of venturing into other fast growing food and beverages categories; however, key risk/concern could be its inability to meaningfully scale up new segments like noodles, oats. We initiate coverage with ‘BUY’.

Brand Horlicks undisputed leader in malted health milk segment

GSK is the undisputed dominant player in the fast-growing under-penetrated domestic malted health drink segment (~70% market share) with Horlicks, Boost, Maltova and Viva. Its key brands Horlicks and Boost have posted impressive double digit sales growth (~20% CAGR) over the past five years. New Horlicks variants, riding high on the brand, have also found favour with consumers (contributes ~20% to Horlicks’s top line).

Innovating and reinvigorating offerings to capture consumer pie

The company, leveraging its strong brand equity, has ventured into biscuits, noodles, and oats in line with its strategy of developing products in the health and wellness segment. It is also expanding distribution in North & West where the presence of GSK is limited and provides a huge growth opportunity (North & West contributes ~15% to sales and likely to reach 20%-25% in the next 4 years. Auxiliary income from the OTC segment is expected to be robust on the back of new launches.

Outlook and valuations: Upbeat; initiate with ‘BUY’

We believe processed food companies will grow faster vis-à-vis non-food consumer companies. Our target for GSK is 24x CY13E EPS (INR119.9) which gives us a value of ~INR2,900. We believe this multiple is justified given the company’s leadership in the HFD segment with pricing power, high growth potential and no competition. Hence, we initiate coverage with ‘BUY’. On relative return basis, the stock is rated ‘Sector Performer’.

Glaxo Smithkline Consumer Healthcare :: JP Morgan India Investor Tour

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Glaxo Smithkline Consumer Healthcare
Volume growth trends - Volume growth has slowed down this year vs. 9% volume
growth CAGR over last 3-4 years. Management also highlighted that higher inflation
has been hurting volume growth in Urban India.
Growing focus on North and West India and Rural India – GSK currently earns
15% of its revenues from North and Western part of India. Management expects it to
reach 20%-25% of overall revenues over next 3 years. Company is expanding its
rural reach and has introduced low price SKUs to enhance affordability for its
products and increase penetration in rural regions.
New product performance - Company has been adding new products to its
portfolio. Value added premium variants of Horlicks brand have witnessed faster
growth. Its noodles launch Foodles differentiates itself on its nutritional value
proposition and has 2-3% share. Biscuit portfolio is witnessing healthy growth rates
supported by introduction of premium value added variants. GSK Consumer is now
entering breakfast cereal market with launch of Horlicks Oats.
Margin outlook - Management highlighted that any new product launch will not be
necessarily margin dilutive. Mgmt stated that healthy margin profile will be a key
priority for the company and they expect A&P/Sales ratio to be ~16-17% near term.
Inflation in milk prices and barley is a concern.

GlaxoSmithKline Consumer: Volatile volume growth; Unsucessful new launches :: Motilal oswal,

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Volatile volume growth; Unsucessful new launches
Horlicks remains mainstay of SKB; "Best is yet to come"
 MFD, Health Foods to continue to be the cornerstone of SKB's strategy.
 SKB to consider further extending the Horlicks brand.
 New launches disappoint; SKB sees potential in parent's OTC products.
 SKB seems confident of sustaining 15% sales growth in MFD products,
pricing power strong.
We attended an analysts meet of GSK Consumer (SKB) at which Managing Director
Mr. Zubair Ahmed stated: "The best is yet to come", despite SKB being on the verge
of achieving its target of doubling sales and profits over the past four years (since
CY07). MFD (Malted Food Drinks) and health foods will continue to be the cornerstone
of SKB's strategy. SKB will also look at new launches in the foods space and at
marketing new OTC products from the parent's global portfolio. Key takeaways:
 SKB is set to achieve its target (set in CY07) of doubling sales and profits over
four years.
 SKB is very positive about growth prospects in the MFD segment as the product
penetration is hardly 22% (11% in rural India). SKB is uniquely positioned as it
has segmented the category with products catering to the youth, children, mothers
and women. Value-added variants comprise 16% of sales against 12% in 2007.
 SKB plans to make Horlicks a mega-brand with extensions across product
categories. SKB extended the Horlicks brand to biscuits, health bars, noodles
and now SKB has ventured into oats under this brand. SKB will consider extending
the brand further, provided it fits the science and wellness quotient.
 SKB markets OTC brands like Eno, Iodex, Crocin, Breathe Right and Sensodyne
from GSK Asia. Eno and Crocin are market leaders and Iodex ranks number two
in the segment. SKB believes its parent has products in the oral care segment
(Sensodyne variants and Aquafresh toothpaste), anti smoking segment and others
that can be marketed over time.
 New launches have shown mixed results. Foodles is back on the drawing board
for product re-configuration and Nutribar has been withdrawn. Biscuits have grown
38%, though on a low base. The share of non-MFD products in sales has increased
from 3% to 7% over the past four years. We are not convinced about the future of
Horlicks as a brand in product categories like noodles and biscuits. We believe
too much umbrella branding can backfire for a wellness brand like Horlicks.
 SKB seems confident of sustaining 15% sales growth in MFD products and higher
margins, led by operating leverage. SKB posted PAT of 23% CAGR over the past
five years. Pricing power remains strong as players like Nestle, Hindustan Unilever
and Dabur made unsuccessful attempts to enter the MFD segment.
 SKB has been re-rated over the past three years due to steadily increasing MFD
volume growth and intent to emerge as a multi-product company rather than an
MFD player. However, new launches have not met with much success. Besides
MFD volumes have been volatile over the past three quarters, being a discretionary
product in a high inflation environment. The stock trades at a PE of 29x CY11E
and 24x CY12E. Maintain Neutral.

Buy GlaxoSmithKline Consumer Healthcare: A healthy pick- Buy; target: Rs3,000:: ShareKhan

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Key points
  Market leader in MFD segment: GlaxoSmithKline Consumer Healthcare (GSK) is a
leader in the malted food drink (MFD) market with a market share of 71%. The MFD
business accounts for around 94% of its overall domestic revenues. Over the years
GSK has developed strong brands, such as Horlicks (a 55% market share) and Boost
(a 13% market share), which are household names today. Judicious new launches
and brand extensions to meet the consumer’s needs and the expansion of its
distribution reach have helped GSK to stay ahead of the competition and maintain
its pricing power over the years.
  Double-digit volume growth in MFDs sustainable in the long run: The penetration
of MFDs is low (22% overall) compared with some of the other consumer goods in
India. With the rising per capita income and increased acceptance of health and
wellness products, the demand for MFDs would increase in the years ahead. Hence,
on the back of improved penetration (both rural and urban), increasing distribution
reach, and sustained innovations and brand extensions GSK’s volumes are expected
to grow by 11-14% in the MFD segment in the long run.
  Entering into new categories: Leveraging the strong brand equity of Horlicks and
‘‘supplementing the brand with consumer insights’’, GSK has entered into newer
categories, such as biscuits, noodles, energy bars, sports drinks, health supplements
and oats, in recent years. While its biscuit segment grew at a CAGR of 30% over
CY2007-10, the noodle segment gained a market share of 3% at an all-India level.
The low penetration of some of the categories, such as noodles, oats, health
supplements and energy drinks, provides strong visibility of future growth.
  Strong balance sheet: GSK is debt-free and has been consistently enhancing its
cash balance over the years. Its cash balance currently stands at close to Rs1,000
crore and is expected to improve to around Rs1,170 crore in CY2012. The strong
cash generation ability would take care of its future capex needs. GSK is known as
a very good dividend payer. Over CY2005-09 its average dividend pay-out stood at
33% (CY2010 was an exception with a dividend of 70%).
  Outlook and valuation: With a double-digit volume growth in the MFD segment and
a strong growth in the newly launched products, we expect GSK’s top line to grow at
a CAGR of 19.2% over CY2010-13. The strong pricing power would help it to maintain
the OPM at 16-17% over the same period. Hence, we expect GSK’s bottom line to
grow at a CAGR of 19.0% over CY2010-13. We initiate coverage on GSK with a Buy
recommendation. Our price target for GSK is Rs3,000 based on 25x its CY2013E EPS
of Rs120.3, which is a 25% discount to Nestle India’s current multiple. The fair value
as per the DCF method comes to Rs3,069. At the current market price the stock
trades at 25.1x its CY2012E EPS of Rs101.3 and 21.2x its CY2013E EPS of Rs120.1.

GlaxoSmithkline Consumer: Good show, GSK remains a preferred pick :: Kotak Sec

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GlaxoSmithkline Consumer (SKB)
Consumer products
Good show, GSK remains a preferred pick. 3QCY11 was further demonstration of
underlying strong growth trend in malted food drink category—Horlicks volumes
+10%, sales +18%, EBITDA +24%, PAT +31%. Modest price hikes and mix
improvement aided gross margin management (decline of just 70 bps), in our view.
‘Horlicks Gold’, launched a few months back, already forms 3% of Horlicks sales. We
reiterate that the varianting-led growth in MFD category could create value growth
tailwinds as well as mix-improvement-led margin expansion opportunity for GSK. ADD.

Sizzling Stocks: Glaxosmithkline Consumer Healthcare, Educomp Solutions :: Business Line

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Glaxosmithkline Consumer Healthcare

Glaxosmithkline Consumer had been consolidating sideways between Rs 2,250 and Rs 2,500 from mid June until last week. It jumped 6.5 per cent in the previous week, emphatically breaking out of this sideways consolidation range. Moreover, the stock had advanced 5.5 per cent the week earlier, breaching its 21- and 50-day moving averages reinforcing the bullish momentum.

The stock is in an uptrend in all time frames. As the stock's daily relative strength index is entering into overbought levels we don't rule out a near-term corrective decline to Rs 2,500. Next supports for the stock are at Rs 2,315 and Rs 2,250. Key resistances are at Rs 2,700 and Rs 2,750.

Educomp Solutions (Rs 241.7)

The stock plummeted 10 per cent on Friday, after the company's announcement of poor September quarters results. It failed to move above its key resistance at around Rs 280 which it was testing from early October and declined steeply. The stock's recent decline penetrated its short-term up trend line that was in place since early September and a key support level at around Rs 250. It appears to have resumed its intermediate and long-term downtrend. The stock may decline and reach its immediate supports at Rs 210 and Rs 190 in the medium-term. Significant resistances are pegged at Rs 250, Rs 280 and Rs 300.