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GSK Pharma: Decent end to the year - Views on News from Equitymaster
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GSK Pharma: Decent end to the year
Mar 13, 2012

GSK Pharma has announced its fourth quarter results for the calendar year 2011 (4QCY11). The company has reported 15.4% YoY growth in sales and 18.2% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by a 15.4% YoY due to revival in the anti-infective and mass markets segment.
  • Operating margins (EBITDA) remain flat at 31.5% as fall in other expenditure offsets the rise in raw material costs
  • Net profits grow by 18.2% YoY on the back of good sales growth and higher interest income
  • The Board recommended a dividend of Rs 45 per Equity Share for the year

Financial performance: A snapshot
(Rs m) 4QCY10 4QCY11 Change CY10 CY11 Change
Net sales 5,007 5,776 15.4% 21,440 23,759 10.8%
Expenditure 3,433 3,954 15.2% 13,739 15,935 16.0%
Operating profit (EBIDTA) 1,574 1,822 15.7% 7,702 7,824 1.6%
EBDITA margin (%) 31.4% 31.5%   35.9% 32.9%  
Other income - -   180 180  
Depreciation 57 62 7.5% 176 204 15.8%
Interest (306) (417) 36.1% (967) (1,416) 46.4%
Profit before tax 1,823 2,177 19.4% 8,673 9,216 6.3%
Tax 600 703 17.3% 2,859 2,902 1.5%
Exceptional Gain / (Loss) (66) (106)   (177) -  
Forex Gain / (Loss) - -   - -  
Minority Interest - -   - -  
Profit after tax/(loss) 1,157 1,367 18.2% 5,637 6,314 12.0%
Net profit margin (%) 23.1% 23.7%   26.3% 26.6%  
No. of shares (m) 85 85   85 85  
Diluted earnings per share (Rs) 14 16   67 75  
Price to earnings ratio (x)*   40.9        
*On trailing 12 month basis

What has driven performance in 4QCY11?
  • GSK Pharma's net sales grew by a 15.4% YoY as the core pharmaceuticals business grew by an impressive rate of 18.2% YoY. This was led by revival in the Anti-infectives and mass market segments. The specialty business, which includes Oncology, Dermatology, Cardiovascular and Metabolics, reported robust double-digit growth on the back of new product launches from the global pipeline and branded generics category. The same was true for the vaccine business which also showed a decent growth on account of increasing number of products in its portfolio.

  • Operating margins (EBITDA) were maintained at 31.5%. There was a substantial rise in raw material cost which got offset by the reduction in other expenditure.

  • Net profits increased by 18.2% YoY led by the strong growth in sales and operating profits as well as 36% YoY increase in interest income.

What to expect?
At the current price of Rs 2,085, the stock is trading at a multiple of 22.7 times our estimated CY13 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. It is also one of the best bet on the Indian Patent regime as it plans to launch new products from its parent's pipeline. The company intends to steadily introduce more products and move towards high margin products. Its focus on priority products (a third of its revenues), chronic therapy segment and brand acquisitions will augur well going forward. But even after taking into account the future growth prospects, current valuations do not leave much on the table for investors.

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