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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.
Rich valuations offer limited upside. In the past four months the stock has outperformed the FMCG Index and the Sensex by 14% and 12%, respectively. Post this outperformance, GSKCH’s valuations look rich at CY13 P/E of 25x and offers limited upside. We raise our earnings marginally and revise our price target to Rs2,807 (implying limited 6.5% upside). Downgrade to In-Line.
Non-core business performance remains poor. Non-core categories continue to disappoint, despite adpsend-to-sales rising to its highest-ever 16.3% in CY11 compared to 12.6% in CY08. Sales contribution from non-core categories remains low at 6-7%. The company has not met with reasonable success in new categories and has either withdrawn or is re-working brands such as Nutribar, Lucozade, Foodles, etc.
3Q FY12 sales growth strong, but EBITDA disappoints
Robust underlying volume growth of 12% in MFD resulted in a net sales growth of 18.6% yoy. Horlicks posted 16% volume growth, while growth in Boost was muted at 2%.
Sales growth in biscuits was strong at 29% yoy, however, Foodles continued to underperform with flattish sales.
Despite strong sales growth, EBITDA grew a moderate 13% yoy, due to higher adspend and other expenses.
Launch of Oats and re-launch of Boost resulted in 27% yoy increase in adspend. Other expenses also increased 25%.
PBT growth was at 22% due to higher other income (up 55% yoy). Adjusting for prior period expenses PAT grew 23%.
Key risks − Sharp decline in milk prices (~30% of input cost) and change in management stance on ad spends intensity can lead to earnings upgrade.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
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.
Rich valuations offer limited upside. In the past four months the stock has outperformed the FMCG Index and the Sensex by 14% and 12%, respectively. Post this outperformance, GSKCH’s valuations look rich at CY13 P/E of 25x and offers limited upside. We raise our earnings marginally and revise our price target to Rs2,807 (implying limited 6.5% upside). Downgrade to In-Line.
Non-core business performance remains poor. Non-core categories continue to disappoint, despite adpsend-to-sales rising to its highest-ever 16.3% in CY11 compared to 12.6% in CY08. Sales contribution from non-core categories remains low at 6-7%. The company has not met with reasonable success in new categories and has either withdrawn or is re-working brands such as Nutribar, Lucozade, Foodles, etc.
3Q FY12 sales growth strong, but EBITDA disappoints
Robust underlying volume growth of 12% in MFD resulted in a net sales growth of 18.6% yoy. Horlicks posted 16% volume growth, while growth in Boost was muted at 2%.
Sales growth in biscuits was strong at 29% yoy, however, Foodles continued to underperform with flattish sales.
Despite strong sales growth, EBITDA grew a moderate 13% yoy, due to higher adspend and other expenses.
Launch of Oats and re-launch of Boost resulted in 27% yoy increase in adspend. Other expenses also increased 25%.
PBT growth was at 22% due to higher other income (up 55% yoy). Adjusting for prior period expenses PAT grew 23%.
Key risks − Sharp decline in milk prices (~30% of input cost) and change in management stance on ad spends intensity can lead to earnings upgrade.
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