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

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GSK Consumer’s (GSK) Q3FY15 sales and PAT came marginally above our expectations. Volume growth improved to 5% YoY despite a high base of 11% YoY (2% YoY in Q2FY15 on base of 10% YoY; 3% YoY in Q1FY15 on base of 7% YoY). The company gained 1.2% volume market share in the Health Food Drink space (HFD) in South. It clocked 25% YoY value growth in oats and captured 6.1% volume market share. We believe volume surge will continue and with correction in SMP and milk prices, gross margins are set to improve in ensuing quarters.

Horlicks makes a healthy splash; RM prices correction aids margin

Horlicks’ extensions clocked double digit growth. GSK had effected 1.5% price hike in October. In Q3FY15, the company increased the price of its low priced pack from INR5 to INR6 (first hike since FY08), which contributed 1.3% to the quarter’s growth. The company relaunched Junior Horlicks with new packaging. Auxillary income jumped ~25% YoY with resolution of the pricing issue in Crocin Advance. With correction in SMP and milk prices, gross margin expanded 177bps YoY. GSK routed some raw material (RM) benefit to A&P (up 257bps YoY); EBITDA margin expanded 29bps YoY.

Health drinks, oats capture market share

In the HFD category in South, GSK gained 1.2% YoY volume market share with 0.5% gain in base Horlicks (relaunched in September) and 0.3% gain in Women’s Horlicks. While the company’s value growth in oats stood at 25%, Marico posted 48% YoY surge. In South India, GSK gained 6.1% volume market share in oats. GSK Plc (unlisted entity) has acquired Novartis’ OTC business (deal contours to be finalised by October 22, 2015), which we expect will be distributed eventually by GSK on sale commission basis, aiding auxiliary income.

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https://www.edelweiss.in/research/GSK-Consumer--Volumes-Stage-a-Healthy-Revival;-Result-Update-Q3FY15/28229.html