GlaxoSmithKline Pharmaceuticals Ltd. share price target

4 February 2020 GSK Pharma (GLXO) was able to improve profitability over FY17-9MFY20, led by product rationalization/enhanced focus on high-margin products. However, its decision to stop selling Zinetac brand (~6% of sales) should have an adverse impact on near-term growth. We expect 8-9% sales CAGR over the next 2 years after adjusting for the loss of Zinetac sales. We reduce our EPS estimates by 12.8%/1.7%/1.3% and reduce P/E multiple to 41x (from 43x earlier) to factor in the (a) voluntary stoppage of Zinetac, and (b) gradual industry-wide slowdown in the anti-infective category with improved hygienic conditions/lower intensity of epidemics. Revenue declined 6% YoY to INR7.8b (v/s est. Adj. for the voluntary recall of ranitidine products and portfolio-optimization initiative, revenue was up 6% YoY. Gross margin (GM) expanded 430bp YoY (+20bp QoQ) to 57.9%, led by the change in product mix.

Revenue growth lower than estimates: Revenues for the quarter at Rs 8821 mn were below our estimates of Rs 9469mn on account of lower traction.

22 October 2019 2QFY20 sales increased 8% YoY to INR8.8b (v/s est. Gross margin (GM) stood at 58.1% and improved 80bp YoY (stable QoQ) due to portfolio rationalization. EBITDA margin improved ~175bp YoY to 22% on account of the superior product mix and lower other expenses as % of sales (-60bp YoY to 18.2%). Employee cost was also down, 40bp YoY, supporting margin expansion. As a result, EBITDA increased ~17.5% YoY to INR1.9b (v/s est. Adj PAT came in at INR1.

steady operating performance with revenue growing by ~8% (driven by 5.4% volume growth). Strong expansion in EBIDTA margins and higher other income led to strong bottom-line growth. Horlicks continued to maintain its leadership in the Health Food Drinks (HFD) category with 44% market share. Premium products gaining good traction coupled with new product launches and improving penetration will be key revenue drivers going ahead. The integration of GSK Consumer and Hindustan Unilever (HUL) will take place by...

Revenues for the quarter at Rs 7880 mn were below our estimates of Rs 8195 mn. The operating margins at 21% in Q1FY20 were below our estimates of 23.2% on account of lower revenue traction and lower gross margin.

Volume growth sustains; Low input cost and efficiencies led to margin expansion: GSK Consumer reported strong results in Q4FY2019, with broad-based growth across products and channels. Revenue grew by 9%, driven by 6.3% volume growth. Business auxiliary income rose by 20% y-o-y, led by double-digit growth across all products. Unlike other FMCG companies, GSK...

GSK has given an optimistic growth outlook on the back of 1) double digit Change in Estimates | Target | Reco HFD volume growth in 9MFY19 2) uptick in rural demand post consumption friendly budget 3) success of Horlicks Protein Plus in fast growth protein...

4 February 2019 Sales grew at robust rate of ~17% YoY to INR8.3b as against our est. of INR7.7b, led by better traction in dermatology and hormones category. Gross margin (GM) declined sharply by ~650bp YoY and ~360bp QoQ to 53.6% due to change in product mix. EBITDA margin contracted by ~350bp YoY to 16.6%, primarily due to decline in GM. This was off-set to some extent by lower employee expense/other expenses, which were down ~240bp/~60bp (as % of sales) YoY. EBITDA declined ~3% YoY to INR1.4b as against our est. Despite margin contraction, PAT increased ~26% YoY to INR1.1b due to better revenue growth, one-time income of INR230m from property sale, and INR50m from non-core brand divestments.

We maintain Sell rating on GlaxoSmithKline Pharma (GSK) and revise our TP to Rs950 (earlier Rs1,900 cum bonus) based on 24x March'20E EPS of Rs39.6. GSK's Q2FY18 results were better than our estimates. GSK's revenue declined by 2%YoY, EBIDTA margin dropped 280bps to 20.2% and net profit before EO item declined by 10% YoY on a higher base in Q2FY18 after GST implementation. GSK's major brands grew by high single digit to double digit during the quarter. That said, the company has a strong presence in the vaccines segment and derives ~20% revenues from the same. Key risks to our assumptions include...

Revenue growth impacted by GST: Revenues for the quarter at Rs 8163 mn were below our estimates of Rs 8613 mn. The operating margins at 20.2% in Q2FY19 were below our estimates of 24%.