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SBCH: Blockbuster June quarter

Jul 25, 2003

GlaxoSmithkline Consumer Healthcare (SBCH) has posted a strong 27% topline growth during the June quarter. It seems that the company's relaunch strategy for both Horlicks and Boost seems to have rubbed off on the performance. It may also be an indication that the inventory correction undertaken by the company last year is now over. There is a minor difference between our revenue growth and the reported growth due to change in numbers of previous quarter figures.

(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Net Sales 1,561 1,976 26.6% 3,416 3,793 11.0%
Other Income 39 63 60.4% 80 102 27.4%
Expenditure 1,265 1,595 26.1% 2,660 3,062 15.1%
Operating Profit (EBDIT) 296 381 28.8% 756 731 -3.3%
Operating Profit Margin (%) 19.0% 19.3%   22.1% 19.3%  
Interest (8) 4 - (5) 7 -
Depreciation 34 91 169.3% 68 182 169.0%
Profit before Tax 310 349 12.6% 773 644 -16.7%
Tax 88 123 40.0% 257 222 -13.7%
Extraordinary items 0 -3 - 0 -18 -
Profit after Tax/(Loss) 222 223 0.5% 516 405 -21.6%
Net profit margin (%) 14.2% 11.3%   15.1% 10.7%  
No. of Shares 45.4 45.4   45.4 45.4  
Diluted Earnings per share* 19.6 19.6   22.8 17.8  
P/E Ratio   13.5     14.9  
*(annualised)            

One must remember that the June quarter last year was exceptionally bad for the company. Topline during that period had declined by a huge 26%. If we see from this angle, then the company has only managed to recoup lost ground. But one thing is for sure. The result posted by SBCH this quarter are likely to pep up investor interest towards this malted beverage major once again.

2002 was one of the worst years for the company, wherein it reported a 12.5% dip in topline and nearly 33% decline in profits. Even in the March quarter this year, GSK Consumer had reported a marginal dip in the topline. The strong growth witnessed this quarter is a sign that the company has managed to address topline concerns successfully. This could have been led by new product introductions in an effort to reposition its ageing brands.

Expenses as a % of sales
Particulars 2QFY03 2QFY04 1HFY03 1HFY04
Stock -6.1% -9.3% -3.4% -3.5%
RM 36.3% 41.7% 34.7% 36.8%
Finished goods 1.3% 1.0% 0.9% 0.9%
Staff cost 13.2% 10.6% 11.7% 10.8%
Advt. 11.8% 9.0% 10.3% 9.7%
Other exps 22.0% 25.8% 21.8% 24.0%
Patent and trademark 1.6% 1.2% 1.1% 1.3%
Def. Rev. exps. 0.8% 0.6% 0.7% 0.7%
Total 81.0% 80.7% 77.9% 80.7%

At the operating level, expenses grew almost neck to neck with the topline. Consequently, GSK Consumer did not see significant benefits on the operating margins front. Higher raw material and other expense were the key contributors to the expense growth. Depreciation provisioning also increased on account of the new 26,000 tonne malted food plant at Sonepat. All this resulted in the company declaring almost similar net profits as in the corresponding quarter last year. On a consolidated half year basis, SBCH has clocked an encouraging 11% topline growth, but a 22% bottomline dip. The company has declared an interim dividend of Rs 3.3 per share.

At Rs 266, the stock trades at 15x annualised 1HFY04 earnings with market cap to sales at 1.6x. As said earlier, the strong growth in June quarter topline is likely to perk investor interest towards the stock. We are still awaiting the management's take on the topline growth and whether it is a sustainable trend. But overall, we are enthused by prospects of a turnaround story.


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