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GSK India : Restructuring paying off - Views on News from Equitymaster
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  • Mar 5, 2002

    GSK India : Restructuring paying off

    Last year was marked with massive restructuring for Glaxo. While the company merged with SmithKline Pharma in line with the global merger, the company revisited almost every aspect of its business to focus on profitability going forward. The company tried to flip every possible costs, discontinued with its rural operations. changed the organisational structure, completely restructured its product portfolio to exit competitive segments and focus on high margin brands. A new management team has also been put in place. The financials of the company are to viewed considering this backdrop.

    (Rs m) FY01 FY02
    Sales (Net) 9,346 10,974
    Other Income 328 462
    Expenditure 8,551 9,928
    Operating Profit (EBDIT) 795 1,046
    Operating Profit Margin (%) 8.5% 9.5%
    Interest 111 96
    Depreciation 164 257
    Profit before Tax 848 1,156
    Extraordinary Income/(Expenses) 182 (313)
    Tax 325 403
    Profit after Tax/(Loss) 705 440
    Net profit margin (%) 7.5% 4.0%
    No. of Shares (eoy) (m) 60 74
    Diluted Earnings per share* 8.8 10.1
    P/E (at current price) 34.7
    *- Excl. extra-ordinary items    

    The above financials are not comparable on a like to like basis as the last year's figures unlike current year's are not on a consolidated basis with SmithKline Pharma. Considering comparative numbers (as shown in the table below), sales and profitability have shown a de-growth. However, one interesting analysis after putting 9 months figures into consideration. While sales have not shown any improvement in the fourth quarter, there seems to be a sharp improvement in the profitability of the company. PBT margins have jumped from 9.1% for 9 months ended Sept'01 to 14.8% for the fourth quarter. This implies that the restructuring exercise of the company has already started showing results.

    Consolidated Results- Restructuring paying off
    Particulars FY01 FY02 % Change 4m FY01 4m FY02 % Change
    Sales (Gross) 12,337 10,974 -11.1% 3,096 2,793 -9.8%
    PBT 1,287 1,156 -10.2% 120 414 244.8%
    PBT Margins (%) 10.4% 10.5% 3.9% 14.8%
    Net Profit (Before Exceptional Items) 828 753 -9.0% 40 NA NA

    Consolidated sales and PBT numbers are more or less in line with our expectations. However, the company has earmarked the entire VRS cost in the current year, as against a two year spread factored in our estimates. Again the absolute VRS expense have also overshooted our estimates of Rs 850 m. Profit on sale of property is on account of partial sale of Worli land to HSBC. Remaining land is expected to fetch the company another Rs 3 bn in the current year.

    The Extra-ordinary Effect
    Rs m FY01 FY02
    Voluntary Retirement Schemes   (959)
    Restructuring / Integration Expenses   (102)
    Non-recurring expense   (55)
    Profit on sale of property   394
    Profit on sale of brands 235  
    Taxation Effect on extraordinary Items (53) 409
    TOTAL 182 (313)

    GSK has been one of the major beneficiary of the recent DPCO dilution. Some of the company's top selling brands like Zentac, Zevit, Cobadex, Septrum and the entire vaccine portfolio is expected to come out of DPCO control. Considering strong brand equity, the company could benefit from price increase. At 18x forward earnings (CMP-Rs 350) for FY03 (Dec'02), the stock looks fairly priced at current valuations. However, one can expect the company to give a handsome one time dividend from expected property sale.



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