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GSK Pharma: Stable & solid performance - Views on News from Equitymaster
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GSK Pharma: Stable & solid performance
Feb 15, 2011

GSK Pharma has announced its CY10 results. The company has reported 13% YoY and 10% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 13% YoY during CY10 led by the company's priority products and vaccines.
  • EBDITA margins improve marginally by 0.2% during the year due to lower raw material costs (as percentage of sales).
  • On excluding extraordinary items during the year, bottomline grows by 15% YoY in tandem with the growth in operating profits.
  • The Board declares a dividend of Rs 40 per share (dividend yield of 1.8%).

Financial performance: A snapshot
(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net sales  4,499 5,007 11.3% 18,911 21,440 13.4%
Expenditure  3,060 3,433 12.2% 12,162 13,739 13.0%
Operating profit (EBDITA)  1,438 1,574 9.4% 6,749 7,702 14.1%
EBDITA margin (%) 32.0% 31.4%   35.7% 35.9%  
Other income 195  306 57.2%  999 1,147 14.8%
Depreciation   48  57 20.4%  164  176 7.7%
Profit before tax  1,586 1,823 15.0% 7,585 8,673 14.3%
Tax 518  600 15.7% 2,536 2,859 12.7%
Exceptional item  (31) (66)      74  (177)  
Profit after tax/(loss)  1,036 1,157 11.7% 5,123 5,637 10.0%
Net profit margin (%) 23.0% 23.1%   27.1% 26.3%  
No. of shares (m)       84.7 84.7  
Diluted earnings per share (Rs)         66.6  
Price to earnings ratio (x)*         33.5  
(* on a trailing 12-month basis)

What has driven performance in CY10?
  • GSK Pharma's topline during the year grew by 13% YoY. This was attributed to the strong growth reported by mass markets, mass specialities and specialities businesses (notably dermatology, oncology, critical care and vaccines). What also led to the growth in sales was the company's focus on launching branded generics, increasing the extension of rural coverage and focused efforts in the hospital segment. New launches in vaccines also continued to log in healthy growth and have now attained market leadership.

  • Operating margins improved marginally by 0.2% during the year due to lower raw material costs (as a percentage of sales). These fell from 36.6% of sales in CY09 to 36.2% in CY10. Other expenses remained under control for the year. The company's operating margins are the best when compared to its MNC peers and we expect them to improve going forward. This will largely be led by changes in its product mix.

  • PBT grew by 14% YoY during the year in tandem with the growth in operating profits. In comparison, growth in net profits came in a tad lower at 10% YoY due to extraordinary expenses this year. On excluding these, growth in net profits stood at 15% YoY.

What to expect?
At the current price of Rs 2,229, the stock is trading at a multiple of 25.6 times our estimated CY12 earnings. Going forward, GSK Pharma intends to continue its focus on priority products, which account for a third of its revenues and increase the contribution from the chronic therapy segment through in-licensing opportunities and brand acquisitions. Continued emphasis will be placed on improving the product mix and focusing on higher margin products. Branded generics are also expected to contribute to overall growth especially since the research pipeline of Big Pharma is drying up as a result of which launches of patented products has slowed down. We shall soon update our research report on the company.

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