GSK India: The leader strikes back - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

GSK India: The leader strikes back

Apr 27, 2002

A look at the operating performance graph of GSK for the last five years would explain the reason for a complete restructuring exercise undertaken by the company last year. While operating margins had taken a dip, sales had started showing signs of stagnation. Saddled with excess manufacturing facilities, labour force and low margin products, the leader was losing its hold in the market.

After a year and a half of restructuring, GSK now seems to be lean, thin and rejuvenated organization with one clear mission statement in mind "Grow profits faster than sales and retain market leadership". The company has set itself the target of doubling its margins over the next three years.

To achieve this target the company seems to be banking on a three-pronged strategy. Focus only on key brands and therapeutic segments, challenging the existing cost structure by exploring every possible cost rationalization strategy and leveraging on the marketing strength created over the years. The restructuring in terms of revenue rationalisation with an aim to improve margins is more or less through and the company is now in the midst of targeting costs across the entire spectrum. This would be achieved through increasing outsourcing, efficient procurement and organizational streamlining.

After the merger with SmithKline Pharma, GSK has a very wide product portfolio covering a broad spectrum of therapeutic segments. The merged entity will target vaccines, dermatology, anti-infective and respiratory segments. We believe that vaccines would be a key area of growth for GSK. The company has several combinational vaccines where it enjoys monopoly position in the market. Even as far as other vaccines are concerned, the company’s products are priced at a premium compared to its peers.

The product portfolio of the company has been rationalized and promotional resources would now be committed to only ‘strategic’ brands. It has reiterated its commitment to focus on recent launches where the company sees a huge penetration potential. The company’s product portfolio boasts of some leading brands in the pharma industry like Iodex, Zinetac, Septran, Betnesol, and Cobadex etc. The company enjoys brand equity among physicians coupled with an enviable distribution network.

With little more than 50% of it’s sales coming from DPCO controlled products, the company is expected to be beneficiary of the current DPCO dilution. According to the new DPCO guidelines, Zinetac, Cobadex, Septran and Zevit are expected to come out of price control. This represents 15% of the total turnover of the company. However, Ceftum, its cephalosporin brand is expected to come under DPCO control, which represents around 5% of the company’s sales.

Sensing the turnaround in financials, GSK stock has already seen a sharp rise in the last month. Valuations going forward may further improve as the company’s targeted efforts translate into bottom line growth for the company. Operating margins of the company have already shown an encouraging rise in the last quarter of FY02 and we expect a sharp spurt in margins in the current year. We expect GSK to record approximately 17% operating margins, a rise of more than 700 basis points.

Further, we expect huge receipts to the company from sale of its (and its subsidiaries) excess properties. Since the company doesn’t have any expansion plans on the table currently, we expect huge one time dividend (in the range of Rs 50-55 per share) to shareholders from the sale of these properties.

Having said that, we believe that the growth in the long term would be constrained by lack of new product introductions. Though the company’s product portfolio boosts of some very strong brand names in the Indian pharma market, the fact is that its portfolio is quite mature and faces stiff competition from domestic companies. At best, the company expects to grow inline with industry growth rates (7-8%), which in itself is not very attractive. To summarise, the restructuring benefits of the company are likely to translate into improving valuations in the short run, however, in the long run, concerns over growth remain.


Equitymaster requests your view! Post a comment on "GSK India: The leader strikes back". Click here!

  

More Views on News

GSK PHARMA Announces Quarterly Results (1QFY21); Net Profit Down 2.2% (Quarterly Result Update)

Aug 26, 2020 | Updated on Aug 26, 2020

For the quarter ended June 2020, GSK PHARMA has posted a net profit of Rs 1 bn (down 2.2% YoY). Sales on the other hand came in at Rs 6 bn (down 17.7% YoY). Read on for a complete analysis of GSK PHARMA's quarterly results.

GSK PHARMA Announces Quarterly Results (2QFY20); Net Profit Up 398.9% (Quarterly Result Update)

Oct 25, 2019 | Updated on Oct 25, 2019

For the quarter ended September 2019, GSK PHARMA has posted a net profit of Rs 5 bn (up 398.9% YoY). Sales on the other hand came in at Rs 9 bn (up 8.1% YoY). Read on for a complete analysis of GSK PHARMA's quarterly results.

GSK PHARMA 2018-19 Annual Report Analysis (Annual Result Update)

Jun 24, 2019 | Updated on Jun 24, 2019

Here's an analysis of the annual report of GSK PHARMA for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of GSK PHARMA. Also includes updates on the valuation of GSK PHARMA.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

GSK PHARMA SHARE PRICE


Sep 28, 2020 (Close)

TRACK GSK PHARMA

  • 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

GSK PHARMA - FULFORD INDIA COMPARISON

COMPARE GSK PHARMA WITH

MARKET STATS