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GSK Cons.: Strong growth in earnings - Views on News from Equitymaster

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GSK Cons.: Strong growth in earnings
Aug 3, 2012

GSK Consumer Healthcare Ltd has announced second quarter results of calendar 2012(2QCY12) results. The company has reported a 12% YoY and 29% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Sales grew by 12% YoY in 2QFY12 led by 15% growth in domestic sales. For 1HCY12, sales were up by 13.2%.
  • Operating margin improved by 70 basis points backed by lower cost of goods sold. In 1HFY12, the operating margin remained flat at 20.3% due to steep rise in other expenses.
  • Earnings clocked a 29.3% jump aided by higher operating profit and other income and drop in depreciation charges. For 1HFY12, earnings were up by 23.6%.
    Rs(m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
    Revenue 6,739 7,584 12.5% 14012.9 15948.4 13.8%
    Expenditure 5,548 6,191 11.6% 11195.6 12704 13.5%
    Operating profit (EBDITA) 1,190 1,394 17.1% 2,817 3,244 15.2%
    EBDITA margin (%) 17.7% 18.4%   20.1% 20.3%  
    Other income 155 285 84.3% 320.6 529.9 65.3%
    Interest 9 8 -7.8% 15.6 20.1 28.8%
    Depreciation 113 86 -24.4% 222.4 204.7 -8.0%
    Profit before tax 1,223 1,585 29.6% 2,900 3,550 22.4%
    Extraordinary inc/(exp) - -   - -  
    Tax 398 519 30.3% 969.1 1163.8 20.1%
    Profit after tax/(loss) 825 1,066 29.3% 1,931 2,386 23.6%
    Net profit margin (%) 12.2% 14.1%   13.8% 15.0%  
    No. of shares (m)         42  
    Diluted earnings per share (Rs)*         95  
    Price to earnings ratio (x)*         28.71  
    *trailing twelve months

    What has driven performance in 2QCY12?
    • GSK Consumer Healthcare (GSKCH) reported a 12% increase in topline led by 15% growth in the domestic market. Exports, that contribute 9% to overall sales, declined on account of the high base-effect of the year-ago quarter. In the domestic market, realisations were up by 8% whereas offtake grew by a subdued 7% as sales to Canteen Stores Department (CSD) remained flat. In the mainstay health foods drinks (HFD) segment, Horlicks recorded growth of 14% led by a price-hike of 8% whereas Boost grew by 22% on 11% higher realisations. Both the brands have a combined market share of 63.8% in the milk foods drink segment. In the non-HFD segment, biscuit sales surged by 24% on a low base. The market share of oats in southern India reached 11.3%.

    • The company has been able to expand operating margin by 70 basis points to 18.4% due to a combination of factors such as waning commodity inflation, better sales mix and higher price realisations. Lower export content and flat sales to CSD translated into improved sales mix during the quarter. Resultantly, the cost of goods to sales ratio decreased by 376 basis points which was partially offset by 224 basis points jump in other expenses (as a percentage of sales).

    • GSKCH reported a steep 29.3 % jump in earnings on the back of 17% increase in operating profit and lower depreciation outgo with one of its plants nearing full depreciation. The company is setting up a new plant having 18,000 tonnes capacity at a cost of Rs 1400 m. The plant is expected to commence production by 1HFY13. Even other income shot up by 84% during the quarter led by 40% growth in a business auxillary commission from distribution of Iodex, Eno, Crocin & Sensodyne coupled with 50% jump in treasury income.

      Cost break-up
      As a % of sales 2QCY11 2QCY12 Change in basis points
      Cost of goods sold 39.4% 35.6% -376.32
      Staff costs 10.1% 10.4% 34.31
      Advertisement costs 14.8% 15.3% 46.55
      Other expenditure 18.0% 20.2% 224.08

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