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GSK Pharma 1Q FY11 results - Views on News from Equitymaster
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GSK Pharma 1Q FY11 results
May 9, 2011

GSK Pharma has announced its 1QFY11 results. The company has reported 11.6% YoY and 15.7% YoY growth in sales and net profits (excluding exceptional item) respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 11.6% YoY during 1QCY11 led by the company's priority products.
  • Operating margins (EBITDA) reduce 1.9% to 35.7% during the quarter due to higher cost of raw material costs (as percentage of sales).
  • Net profits after tax grow 15.7% YoY (excluding exceptional item) due to strong growth in other income.
  • Exceptional items net of taxes shows a onetime loss of Rs 1,859 m led by the provisioning made for an on-going litigation with the central government.

Financial performance: A snapshot
(Rs m) 1QCY10 1QCY11 Change
Net sales 5,465 6,098 11.6%
Expenditure 3,410 3,920 14.9%
Operating profit (EBDITA) 2,055 2,179 6.0%
EBDITA margin (%) 37.6% 35.7%  
Other income 383 511 33.4%
Depreciation 38 44 17.8%
Profit before tax 2,400 2,645 10.2%
Tax 790 782 -1.0%
Profit after tax/(loss) without exceptional item 1,610 1,863 15.7%
Net profit margin (%) without exceptional item 29.5% 30.6% 3.7%
Exceptional items 0 -1,859  
Profit after tax/(loss) after exceptional item 1,610 5 -99.7%
No. of shares (m) 84.7 84.7  
Diluted earnings per share (Rs)*   69.5  
*Adjusted for one time exceptional litigation loss

  • GSK Pharma's topline during the quarter grew by 11.6% YoY. This could be attributed to the strong double-digit growth of Vaccines and the Mass Speciality business. Two new product launches also helped in contributing to the revenue growth.

  • Operating margins improved by 1.9% to 35.7% during the quarter and could be attributed to higher raw material cost. The raw material costs (as a percentage of sales) increased 0.5% to 37.7% in 1QCY11. Staff costs also increased on account of hiring of 550 new medical representatives during the quarter. The company's operating margins are the best when compared to its MNC peers and we expect them to improve going forward. This will largely be led by changes in its product mix as opposed to any cost reduction.

  • Net profit (excluding exceptional item) grew by 15.7% YoY during the quarter and was higher than the growth in operating profits. This was largely driven by growth in other income which grew by 33.4%.

  • Exceptional items net of taxes shows a loss of Rs 1,859 m. This was led by the provisioning made for an on-going litigation with the central government for overcharging of Belamethosone bulk drugs and formulations. But this can be reversed if the outcome of the case turns in favor of the company.

What to expect?
At the current price of Rs 2,294, the stock is trading at a multiple of 26.8 times our estimated CY12 earnings. GSK Pharma has strong product pipeline and brand building ability as shown in the past. The company intends to steadily introduce more products and move towards high margin products. Its focus on priority products, which account for a third of its revenues and chronic therapy segment through in-licensing opportunities and brand acquisitions seems to go well. 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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