Glaxosmithkline Pharma - 3Q Results – No Surprises -SELL:: Citi

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Glaxosmithkline Pharmaceutical (GLAX.BO)
3Q Results – No Surprises
 No Surprises — GLAX continued to post steady numbers (3Q sales up 14%;
recurring net income up 12%) and appears on track to achieve its target of
growing in line with the market this year. It also got two new approvals during the
quarter. The business remains on solid ground and we expect steady growth rates
to continue. We however see limited scope for re-rating in the near term and
maintain our Sell (3L) rating, even as we raise TP to Rs2,030 (roll over to
25xMarch’12E).
 Inline 3Q — 3Q results were inline with net sales of Rs5.9bn (up 14% YoY) and
recurring PAT of Rs1.6bn (up 12% YoY). Growth was strong across all segments,
including vaccines and primarily by new products launched over the last two
years. EBITDA margins were lower at 37% (-98bps), owing to higher RM/Sales (up
193bps), even as fixed overheads were under control. Higher interest income (up
52% YoY to Rs 256m) further buoyed PAT growth (+12%YoY).
 Two New Approvals — GLAX received two new approvals during the quarter –
Revolade (for low platelet counts) and Votrient (for metastatic renal cell
carcinoma). We expect the stream of new launches to continue at a steady pace,
as GSK looks to add to its parent’s proprietary pipeline through inlicensing and
branded generics initiatives.
 Remains Expensive — We marginally raise CY10-12 EPS estimates by 1.5% each,
as we shift to a slightly lower tax rate (33% v/s 34% earlier) for all years. AT
estimates for CY10 and CY11 by 1.5% owing to a lower tax rate (c33%). While we
remain positive on GLAX’s long term prospects in India, the stock appears
expensive at 29xCY11E EPS, in context of the c14% EPS CAGR over CY09-12E.
Maintain Sell.