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GSK Pharma: Weak quarter - Views on News from Equitymaster
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GSK Pharma: Weak quarter
Mar 12, 2015

GSK Pharma has announced its 4QCY14 results. The company has reported 2.5% YoY growth in sales and a decline of 61.3% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 2.5% YoY, the core pharmaceuticals business grows by 1.2% YoY.
  • The operating profits decline by 3% YoY, subsequently the operating margins are down by 1%.
  • Bottomline declines by 61.3% YoY due to an extraordinary item. Excluding these one-offs, net profits are down by 15.8% YoY.

Financial performance: A snapshot
(Rs m) 4QCY13 4QCY14 Change CY13 CY14 Change
Net sales 6,306 6,462 2.5% 25,202 26,399 4.8%
Other operating income 66 47 -29.0% 260 273 5.2%
Expenditure 5,190 5,362 3.3% 20,241 21,659 7.0%
Operating profit (EBDITA) 1,182 1,147 -3.0% 5,221 5,014 -4.0%
EBDITA margin (%) 18.6% 17.6%   20.5% 18.8%  
Other income 478 378 -21.0% 2,009 1,582 -21.3%
Depreciation 58 59 1.4% 199 206 3.6%
Profit before tax 1,603 1,466 -8.5% 7,031 6,390 -9.1%
Exceptional (loss)/gain 84 (461)   262 (461)  
Tax 518 552 6.6% 2,274 2,241 -1.4%
Profit after tax/(loss) 1,169 453 -61.3% 5,019 3,687 -26.5%
Net profit margin (%) 18.3% 7.0%   19.9% 13.8%  
No. of shares (m)         204.7  
Diluted earnings per share (Rs)         59.3  
Price to earnings ratio (x)*         56.1  
*based on trailing 12 months earnings

What has driven performance in 4QCY14?
  • Net sales increased by 2.5% YoY. The company generates large part of its revenues from the core pharmaceuticals segment. The quarterly performance was impacted by supply constraints.

  • Because of poor topline growth, the operating margins also remained under pressure during the quarter. CY14, too, witnessed subdued performance on the margin front.

  • At the PBT level, the profits were down by 8.5% YoY. However, the bottom line was down by 61.3% YoY, due to exceptional losses during the quarter as against an exceptional gain in 4QCY13. Excluding these extraordinary items, net profits were down by 15.8% YoY.
What to expect?
At the current price of Rs 3,325, the stock is trading at a multiple of 47 times our estimated CY16 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. However, company's performance has remained quite muted since the last few quarters due to various challenges viz; pricing policy, increasing competition and so on. Most importantly, valuations are expensive. We thus reiterate our SELL rating on the stock.

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