GSK Pharma: Eyeing 2005 - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

GSK Pharma: Eyeing 2005

Mar 13, 2003

MNC Pharma major, GlaxoSmithKline (GSK), has reported encouraging profit growth numbers for the December quarter as well as the full year 2002. However, the topline growth was staid, owing to sluggishness in allied businesses like animal healthcare, fine chemicals and exports.

(Rs m)4QFY024QFY03ChangeFY02FY03Change
Net Sales2,6232,133-18.7%10,10310,4733.7%
Other Income5410697.0%27833821.6%
Total expenditure2,3551,923-18.3%9,0578,736-3.6%
Operating Profit (EBDIT)268209-21.8%1,0461,73766.1%
Operating Profit Margin (%)10.2%9.8%10.4%16.6%
Interest (net)-19-33--89-83-
Profit before Tax23230230.3%1,1561,96369.9%
Extraordinary items-527-251--313-304-
Profit after Tax/(Loss)-404-26-440981123.0%
Effective tax rate (%)47.0%25.3%34.8%34.6%
Net profit margin (%)-15.4%-1.2%4.4%9.4%
No. of Shares (eoy) (m)74.574.574.574.5
Earnings per share*-21.7-1.45.913.2
Current P/e ratio22.4

Its core business of pharmaceuticals (over 80% of sales) reported over 8.5% growth during the year, in line with the industry trend. The allied businesses recorded a drop of over 7% in sales during the year. Consequently, GSK finished FY03 with sub 4% topline growth (excluding excise). The performance in December quarter was even worse, as topline dipped nearly 19% YoY.

What GSK lost in topline terms, it made up by increasing efficiencies and hence operating margins. In FY03, operating margins improved by over 6% at 16.6%. As per the management, the improvement in margins is likely to continue as GSK has decided to concentrate on select profitable brands (i.e. not under DPCO), in a bid to give a fillip to its profitability. One would have thought that GSK is adopting the model adopted by many FMCG companies recently.

Cost break-up
(Rs m)4QFY024QFY03ChangeFY02FY03Change
Raw material1,4321,017-29.0%5,3115,031-5.3%
Staff cost29135020.2%1,3111,3130.1%
Other expenditure661570-13.8%2,5722,491-3.1%
Recovery of expenses(29)(13)-55.9%(136)(100)-26.9%
Total 2,3551,923-18.3%9,0578,736-3.6%

Post the merger with SmithKline, GSK has increasing looked to close down unviable plants and looked to increasing outsource manufacturing. Its looking at selling of property (of erstwhile SmithKline) and streamlining operations of both companies for optimal utilisation (through VRS). Consequently, the company's depreciation provisioning has come down quite significantly and the spurt in other income suggests that it is reaping the benefits of investible funds.

Extraordinary items break-up
(Rs m)FY02FY03
VRS and other retirement benefits(959)(312)
Loss/write off of fixed assets(35)(36)
Merger/rationalisation expenses(122)(51)
Increase in retirment benefit contribution-(90)
Profit on sale of plant and property394 71
Taxes on the above409 114
Total (313)(304)

Excluding extraordinary items, GSK would have reported 84% growth in net profits during the December quarter, and 71% growth in FY03. The details of these extraordinary items are given in the table above.

At the current price of Rs 296, the stock is trading at 22.4x FY03 earnings. The company is gearing itself towards 2005, when patent regime comes into force. The valuations look quite attractive seeing the company's focus and the strong brand name.

Equitymaster requests your view! Post a comment on "GSK Pharma: Eyeing 2005". Click here!


More Views on News

GSK PHARMA 2020-21 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of GSK PHARMA for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of GSK PHARMA. Also includes updates on the valuation of GSK PHARMA.

GSK PHARMA Announces Quarterly Results (3QFY21); Net Profit Up 124.4% (Quarterly Result Update)

Feb 10, 2021 | Updated on Feb 10, 2021

For the quarter ended December 2020, GSK PHARMA has posted a net profit of Rs 2 bn (up 124.4% YoY). Sales on the other hand came in at Rs 9 bn (up 10.2% YoY). Read on for a complete analysis of GSK PHARMA's quarterly results.

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 12:21 PM


  • Track your investment in GSK PHARMA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks