Glaxo: 1HFY02 PBT drops 34%

Glaxo has reported a sharp drop in sales and PBT for 2QFY02. The results declared by the company were more or less expected by the markets. There is an one time charge of Rs 75 m in 2QFY02 on account of expenses of new launches and restructuring expenses in relation with amalgamation of SmithKline Beecham. Though operating margins have dropped at the look of it, after adjusting for one time charges, the operating margins have remained stable.

(Rs m)	1HFY01	1HFY02	%Change	2QFY01	2QFY02	%Change
Sales	4,700	3,927	-16.5%	2,867	1,983	-30.8%
Other Income	161	147	-8.6%	81	83	3.0%
Expenditure	4,244	3,631	-14.4%	2,555	1,850	-27.6%
Operating Profit (EBDIT)	456	296	-35.2%	312	133	-57.4%
Operating Profit Margin (%)	9.7%	7.5%		10.9%	6.7%
Interest	47	42	-9.0%	26	20	-23.7%
Depreciation	77	74	-4.8%	38	36	-5.8%
Profit before Tax	493	327	-33.8%	329	161	-51.2%
Extraordinary Income	155	394		105	394
Tax	212	193	-9.0%	139	129	-7.3%
Profit after Tax/(Loss)	436	527	20.8%	295	425	44.1%
Net profit margin (%)	9.3%	13.4%		10.3%	21.4%
No. of Shares (eoy) (m)	60	60		60	60
Diluted Earnings per share*	14.6	17.6		19.7	28.4
P/E (at current price)		14.4			8.9
(*- annualised)

The decline in turnover can largely be attributed to drop in sales of Ceftum, Cobadex, Forte and Betnesol, the key products for the company. The company has identified 30 strategic key brands, which contributes around 75% of the total turnover. The promotion expenses would be restricted to brands that have potential to provide growth momentum. Going forward, the company also plans to have tighter control over its administrative costs. Glaxo has recently launched an anti asthma (Seretide) an anti-allergy drug (Flixonase) and an smoking cessation pill (Zyban).

At the current market price of Rs 253, the stock is trading at a P/e of 12x its expected earnings for FY02. The company is expected to benefit on account of cost savings from amalgamation with SmithKline Pharma.