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GSK Pharma: The 'extraordinary' impact - Views on News from Equitymaster
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GSK Pharma: The 'extraordinary' impact
Feb 21, 2013

GSK Pharma has announced its 4QCY12 results. The company has reported 16% YoY growth in sales and marginal increase of 1.4% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 16% YoY during the quarter, its core pharmaceuticals business grows by 16% YoY.
  • Operating margins decline by 2.2% due to increase in operating expenses and decline in operating income.
  • Bottomline increases by 1.4% YoY during 4QCY12, due to higher exceptional losses relating to rationalizing initiatives and actuarial loss on employee benefits.

Financial performance: A snapshot
(Rs m) 4QCY11 4QCY12 Change FY11 FY12 Change
Net sales 5,660 6,567 16.0% 23,380 25,999 11.2%
Operating Income 116 59 -48.9% 379 304 -19.8%
Expenditure 3,954 4,653 17.7% 15,935 18,112 13.7%
Operating profit (EBDITA) 1,822 1,973 8.3% 7,824 8,191 4.7%
EBDITA margin (%) 32.2% 30.0% 2.1% 33.5% 31.5%  
Other income 417 417 0.2% 1,596 1,935 21.2%
Interest (net) - -   - -  
Depreciation 62 46 -25.5% 204 178 -12.6%
Exceptional gain/(loss) (158) (297) 88.3% (3,225) (1,482) -54.0%
Profit before tax 2,019 2,048 1.4% 5,991 8,466 41.3%
Tax 652 662 1.5% 1,685 2,693 59.9%
Profit after tax/(loss) 1,367 1,386 1.4% 4,306 5,773 34.1%
Net profit margin (%) 24.2% 21.1%   18.4% 22.2%  
No. of shares (m)         847.0  
Diluted base earnings per share (Rs)         68.2  
Price to earnings ratio (x)*         30.8  
*based on trailing 12 months earnings

What has driven performance in 4QCY12?
  • GSK Pharma's topline grew by 15% YoY during the quarter, led by its core pharmaceuticals business, which also grew by 16% YoY. The company's growth was above the industry growth rate of ~10% for the quarter.

  • Operating margins declined by 2.2% due increase in operating expenses and decline in operating income. The material costs increased by 21%, while staff costs and other expenditure rose by 9% and 15% respectively.

  • Bottomline increased by 1.4% YoY during 4QCY12, due to higher exceptional losses. These related to rationalizing initiatives and actuarial loss on employee benefits. Excluding these costs, the profit after tax has increased by 10% YoY.

What to expect?
At the current price of Rs 2,100, the stock is trading at a multiple of 22 times our estimated CY14 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. The company is focusing on launching high margin products . However, as the company is highly exposed to the pricing policy, its revenues will get impacted once the proposed policy gets cleared. Secondly, its higher dependence on the acute segment and largely on the anti-infective segment raises concern about its growth prospects going forward. As the current valuations do not leave much on the table for investors, we recommend investors to 'Sell' the stock.

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