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GSK Consumers: A 'Boost'ing quarter - Views on News from Equitymaster
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GSK Consumers: A 'Boost'ing quarter
Apr 24, 2009

Performance summary
  • Topline grows by a strong 31% YoY during 1QFY09 led by a robust 20% YoY volume growth.
  • On the costs front, other than input costs, all the major cost heads grow at lower rates than the topline, thus boosting operating margins by 2.3% during the quarter.
  • Robust operating margins coupled with lower interest and depreciation cost leads to the bottomline growth of 48% YoY.

Financial picture
Rs m 1QCY08 1QCY09 Change
Net sales 4,109 5,394 31.3%
Expenditure 3,300 4,207 27.5%
Operating profit 809 1,187 46.7%
Operating margins (%) 19.7% 22.0%  
Other Income 186 256 37.8%
Interest (net) 25 13 -47.6%
Depreciation 106 106 0.0%
Profit before Tax 864 1,324 53.3%
Tax 298 485 62.7%
Profit after Tax/(Loss) 566 839 48.4%
Net profit margin (%) 13.8% 15.6%  
No. of Shares (m) 42.1 42.1  
Diluted Earnings per share (Rs)*   51.3  
Current P/e ratio   15.5  
*12 months trailing earning

What has driven performance in 1QCY09?
  • Focus on new launches, market leadership and increasing penetration in the malted beverage segment has helped GSK Consumer to yet again post double digit topline growth. The company’s sales grew by 31% YoY during the quarter on the backdrop of a strong 20% YoY volume growth coupled with 7% price hike. Even the excise duty reduction aided the growth to some extent. While Horlicks grew by 21% YoY, Boost reported 8% growth. Exports which form 6% of the total sales have witnessed a 45% YoY growth as manufacturing facility has been shifted here. GSK Consumers launched 3 new products namely ‘Nutribar, Actigrow’ (for kids) and ready to drink product during the quarter. The management expects the growth in the coming quarter to be around 8% to 9% in the malted segment on account of increasing competition.

  • On the costs front, other than input costs, all the major cost heads grew at lower rates than the topline, thus boosting operating margins by 2.3% during the quarter. The company took some cost cutting initiatives to keep staff costs and other expenses under check. Though the company had taken price hikes of products in January, the prices of key inputs still continue to remain high. The input costs increased by 39% YoY during the quarter on account of new products and packaging. The management expects the margins to be marginally lower than last year mainly on account of higher ad spends to the tune of 13.5% of sales. Also, the input prices are expected to remain high.

  • On the backdrop of robust operating margins coupled with lower interest and depreciation costs, the net profits jumped 48% YoY. However, the effective tax rate increased to 36.6% from 34.5% in the corresponding quarter last year, thus restricting the growth to that extent.

What to expect?
At the current price of Rs 795, the stock is trading at a multiple of 13.5 times our CY11 earnings estimates. On account of strong brands and new launches, the company has continued to witness strong growth. It expects to launch new products in the existing and new categories going forward. Further, it is also expanding its capacities and has lined up capex plans of Rs 1.8 bn for the next year. While the margins would be lower than 1QCY09 going forward, the growth prospects look robust. We continue to have a positive view on the company.

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