MNC Pharma major, GlaxoSmithKline (GSK), has improved its topline during the June quarter. After registering a 2.5% topline dip in the March quarter, the company has reported over 10% growth in the same during the June quarter. The company had attributed the topline dip in the March quarter to VAT concerns. Going by the June quarter performance it seems that the domestic pharma industry is back on track.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Effective tax rate (%)
Net profit margin (%)
No. of Shares (eoy) (m)
Earnings per share*
Current P/e ratio
Its core business of pharmaceuticals (over 80% of sales) reported 5.7% growth during first half of 2003, much above the industry growth rate of 2.5% during the period. Export sales during the half year declined by 47% mainly due to the discontinuation of Ranitidine exports post the Ankleshwar site closure. This had an impact on the company’s overall sales performance during the half year. Its other businesses recorded a drop of 12% in sales during six months. Consequently, GSK finished 1HFY04 with only a 4% topline growth (excluding excise).
Improving efficiencies continued to help GSK post higher operating margins. Though in the June quarter, material cost as a percentage of sales did see an uptick, for the overall first half of the year material cost as a percentage of sales stayed below 48% (49.3% in 1HFY03). The company's focus on power brands that are more profit making (i.e. not under DPCO) seems to be yielding results. In FY03, the company's operating margins had improved by over 6% at 16.6%. Continuing the trend, operating margins have improved from 18% to over 22% in the first half of FY04. Consequently, GSK finished 1HFY04 with a 34% growth at the PBT levels.
Segment revenue break-up
Total segment revenue
Post the merger with SmithKline, GSK has increasingly looked to close down unviable plants and also looked to increase outsourced manufacturing. It is looking at selling off property (of erstwhile SmithKline) and streamlining operations of both companies for optimal utilisation (through VRS). Consequently, the company's depreciation provisioning too has come down. The spurt in other income suggests that it is reaping the benefits of investible funds. GSK Consumer's estimated surplus cash stands at nearly Rs 2 bn.
Segment (PBIT) break-up
Add: Interest income (net)
Less: Unallocable exp. (net)
The extraordinary items mentioned in 1HFY04 represents Rs 123 m received as profit on sale of its Bangalore office property. The company is also in the process of selling its Mumbai property, which is estimated to fetch the company nearly Rs 1 bn over the next few quarters.
At the current price of Rs 385, the stock is trading at a P/E multiple of 14.4x its annualised 1HFY04 earnings. The company is gearing itself towards 2005, when the patent regime comes into force. The company is also likely to finalise the much awaited merger with Burroughs Wellcome soon.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407