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SBCH: Malt king weakening?

Aug 2, 2002

GlaxoSmithKline Consumer Healthcare Ltd. (erstwhile SmithKline Beecham Consumer Healthcare) posted diappointing results for the June quarter. The company posted a never before 26% decline in the topline in 1QFY03. This resulted in the margins getting squeezed and the company finally finished the quarter with a significant 45% dip in bottomline.

(Rs m)2QFY022QFY03Change1HFY021HFY03Change
Net sales 2,121 1,561 -26.4% 3,968 3,416-13.9%
Other Income 70 39 -43.7% 153 80-47.7%
Expenditure 1,627 1,265 -22.3% 3,092 2,660-14.0%
Operating Profit (EBDIT) 494 296 -40.1% 875 756 -13.7%
Operating Profit Margin (%)23.3%19.0% 22.1%22.1% 
Interest (net) (8) (8)  16 -5-
Depreciation 34 34 0.0% 67 681.5%
Profit before Tax 538 310 -42.5% 946 773 -18.3%
Tax 135 88 -34.9% 257 257-0.2%
Profit after Tax/(Loss) 403 222 -45.0% 688 516 -25.0%
Net profit margin (%)19.0%14.2% 17.4%15.1% 
No. of Shares (eoy) (m)45.445.4 45.445.4 
Diluted Earnings per share*35.519.6 30.322.8 
Current P/e ratio 16.2  13.9 

The results have surprised the analyst community. Though the company has not commented on the reasons for the sharp dip in topline, it seems that the dip has more to do with an inventory correction than anything else.

Whatever the reasons, the poor results have shaken investor confidence towards the counter. GlaxoSmithKline Consumer anyway never got higher valuations owing to its one product category focus. The parent's other 100% subsidiary was always a cause for concern. But the blip in quarterly results saw the stock price lose over 13% of value ever since the results were announced.

Cost breakup
(Rs m)2QFY022QFY03Change1HFY021HFY03Change
Stock 2 (95)- (95) (115)20.4%
RM 733 567 -22.6% 1,473 1,184 -19.6%
Finished goods 15 21 43.8% 32 32 2.2%
Staff cost 179 207 15.7% 344 400 16.1%
Advertising 152 184 21.6% 341 352 3.0%
Other exps 523 344 -34.2% 948 746 -21.3%
Patent and trademark 12 25 - 25 37 50.2%
Def. Rev. exps. 12 12 - 24 25 1.2%
Total 1,626.90 1,265 -22.3% 3,092 2,660 -14.0%

The stock is trading at Rs 317, a P/E of 14x annualised 1HFY02 earnings. We are reworking our estimation for FY03 post the surprising 2QFY03 results. Having said that, GlaxoSmithKline Consumer has traditionally had a stable business growth and there seems no reason to suggest that it may not bounce back.

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