SmithKline Beecham – Leading the health food drink market
The malted food drink market in India is divided among the four players Heinz, Cadburys, Nestle and SmithKline Beecham Consumer Healthcare (SBCH). Since the other three are single brand entities at least in the malted drinks categories SBCH has a wider portfolio.
Acquisition provides good opportunity to grow
Recently SBCH has acquired the leading brands Viva and Maltova from Jagatjit Industries Ltd. for a consideration of Rs 862.5 m. The two brands will enable SBCH to consolidate its presence in the health food drink segment.
The malted food drink market in India is estimated to be 90,000 tonnes in volume terms and Rs 9 bn in value terms. Currently Horlicks enjoys the market share of 54% and Boost 10%. Addition of the two brands Viva and Maltova will help the company in increasing its market share to 72% from 64% in the health food drink market. Viva and Maltova are priced at the lower end of the segment, while Horlicks and Boost are present in the upper end of the market. This will give the company a presence in all segments of the market.
Market share in the health food drink market
Maltova & Viva
Best Profit margins among the competitors
SBCH enjoys comparatively better profit margins among its nearest competitors Nestle and Cadbury. Effective cost control measures, and improved realisations have helped the company in maintaining its higher profit margins. Further its zero debt status will also contribute in bettering its profit margins in coming years.
Comparative profit margins
Operating profit margin
Net profit margin
At the current market price of Rs 334, SBCH is trading near to its 52 week low with P/E ratio of 15.5 times its FY99 earnings. In the past 2 years, the stock has enjoyed a P/E ratio in the range of 25-40 times. Also compared to its peers, its valuations are the lowest. The company has clearly emerged as a market leader with the strategic acquisition of two brands. Maybe a re-rating of the stock is in the offing.
GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.
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