X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
GSK Pharma: Where to from here? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 15, 2005

    GSK Pharma: Where to from here?

    Glaxo announced disappointing 1QCY05 numbers much in line with its peers in the industry. In the following article, we take a look at how the company has performed over the years and future prospects.

    About the company
    Numbers at a glance...
    CY02 CY03 CY04 1QCY05
    Net sales growth (%) 3.7% 4.4% 25.9% -23.1%
    Operating profit margin (%) 16.5% 22.7% 28.0% 25.7%
    PBT margin (%) 18.8% 26.0% 30.4% 29.3%
    Net profit margin (%) 9.4% 15.8% 24.2% 17.0%
    Net profit growth (%) 123.5% 75.7% 93.2% -26.6%
    GSK India is the largest pharma company in the Indian market with a share of 6.5% (December 2004). It is a 49% subsidiary of US$ 37 bn Glaxo group - the world's second largest pharma company with a R&D war chest of US$ 4 bn. GSK India's product portfolio boasts of some of the leading brands like Augmentin, Zinetac, Betnesol, Cobadex Forte and Zevit in the domestic pharma market. Most of the company's products face stiff price competition from domestic players. The company underwent a restructuring exercise and effect of the same was evident in 2003 and 2004. It derives its revenues from pharmaceuticals, animal healthcare and fine chemicals. In 2004, it successfully merged Burroughs Wellcome India with itself, after a long wait.

    Performance over the years
    CY02: Topline registered a sluggish 4% YoY growth. Though the pharma business recorded an 8.5% growth, which was in line with the industry trend, the allied businesses registered a decline of over 7% in revenues, leading to a staid topline growth. However, it must be noted that the company's efforts to reduce costs and thereby improve operating margins from 10% to 16% augured well for the company, negating the impact of sluggish revenues. Raw material costs and other expenses dropped by 5% YoY and 3% YoY respectively.

    Cost break-up
    (% sales) CY01 CY02 CY03 CY04
    Raw materials consumed 52.6% 48.0% 45.2% 42.9%
    Staff costs 13.0% 12.5% 11.9% 10.5%
    Other expenses 25.5% 23.8% 21.1% 18.6%
    The management also made a decision to concentrate on its top 30 brands in a bid to boost its profitability. Also, the company's decision to close down unviable plants and sell property of the erstwhile SmithKline led to a drop in its depreciation provisioning. Consequently, bottomline soared by 123% YoY. However, if one were to exclude the effect of the extraordinary items, bottomline actually grew by 70% YoY.

    CY03: During the year topline registered a 4% YoY growth. This topline growth was mainly driven by the pharmaceuticals business which grew 6% YoY. The company's strategy of focusing on 30 priority brands (including brands like 'Augmentin') ensured that these products registered a double-digit growth and consequently, boosted the revenues of the pharma business. Another growth driver was the company's vaccines range where it rolled out a concept of 'Famili Vaccines', an immunisation awareness initiative.

    Peer comparison
    December 2004 Glaxo Pfizer* Aventis Ranbaxy
    Net sales growth (%) 25.9% 17.5% 12.8% 13.0%
    Operating profit margin (%) 28.0% 11.8% 29.2% 18.9%
    Net profit margin (%) 24.2% 8.2% 20.2% 12.9%
    * November 2004
    The company also focused on enhancing its operational efficiency, which was reflected in the rise in the operating margins from 17% to 23%. Raw material costs and other expenses (as a percentage of sales) registered a decline of 2% and 8% respectively. This was consequently reflected in the bottomline which rose by 51% YoY. The improvement in the margins would have been better but for the fact that the National Pharmaceuticals Pricing Authority (NPPA) revised downwards the prices of Ranitidine formulations in September 2003. This affected the margins of Zinetac, one of the important products of Glaxo.

    CY04: Revenues clocked a robust 26% YoY growth. However, it must be noted that during the year, the company merged Burroughs Wellcome India with itself, which contributed around 14% to Glaxo's revenues. If Burroughs is excluded, then the revenues grew by 8% YoY. The company's pharma business (84% to revenues in CY04), grew by 8.7%, beating the industry growth rate of 6.4%. The growth was led by the company's continued focus on power brands. As far as the other businesses are concerned, animal health business grew by 7% and the fine chemicals business grew by 5.5%.

    Operating margins showed considerable improvement from 23% to 28% on the back of increased contribution from power brands as well as lower marketing, sales promotion and administrative expenses. This was also reflected in the bottomline which jumped 93% YoY. However, the sharp rise in the bottomline was also due to the extraordinary income fillip during the year to the tune of Rs 670 m, which was on account of sale of its Worli plot.

    What to expect?
    At 768, the stock is trading at a P/E multiple of 35.7 its annualised 1QCY05 earnings. In our view, Glaxo has restructured itself well so far. The company has focused itself on its power brands and is likely to dominate these categories going forward. Glaxo will soon be entering growing market segments like cardiovascular, CNS and diabetes. It is exploring in-licensing opportunities in the gynaecology, gastroenterology and nutritional segments. Going forward, the company is also likely to start clinical trials, which shows that the Indian subsidiary is high on the parent's radar. Also, now that the product patent regime has come into force in India, the company is set to launch new patented products from its parent's portfolio (after 2007).

    The company reported subdued 1QFY05 numbers due to VAT and MRP based excise related concerns. We expect CY05 also to be a subdued year. Also, though beneficial in the long term, the impact of the product patent regime is not likely to have an immediate impact on growth. Having said that, prospects for the company look good from a long-term perspective.

     

     

    Equitymaster requests your view! Post a comment on "GSK Pharma: Where to from here?". Click here!

      
     

    More Views on News

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    Sun Pharma: Price Erosion in US Impacts Growth (Quarterly Results Update - Detailed)

    May 30, 2017

    US markets decline while other geographies grow in the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    GSK PHARMA SHARE PRICE


    Aug 18, 2017 (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 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE GSK PHARMA WITH

    MARKET STATS