X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
GSK Cons.: Sales fail to boost margins - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

GSK Cons.: Sales fail to boost margins
Aug 7, 2013

GSK Consumer Healthcare Ltd has announced second quarter results of calendar 2013(2QCY13) results. The company has reported a 17% YoY growth in sales and 12.5% YoY rise in net profits. Here is our analysis of the results

Performance summary
  • Topline grew by 17% led by 10% rise in realizations and 7% volume growth. During 1HCY13, revenues increased by 17%.
  • The operating margin contracted by 0.9% due to steep rise in staff costs and other expenditure. For 1HFY13, operating margin declined by 0.9% due to higher staff costs and ad-spends.
  • Net profit grew by 12.5% on a 12% rise in operating profit and 35% increase in other income. In 1HFY13, net profits increased by 15.9%.

Standalone Financial Snapshot
Rs(m) 2QCY12 2QCY13 Change 1HCY12 1HCY13 Change
Revenue 7,584 8,903 17.4% 15948.4 18656.8 17.0%
Expenditure 6,191 7,343 18.6% 12704 15033.4 18.3%
Operating profit (EBDITA) 1,394 1,560 12.0% 3,244 3,623 11.7%
EBDITA margin (%) 18.4% 17.5%   20.3% 19.4%  
Other income 285 385 35.1% 529.9 709.7 33.9%
Interest 8 2 -80.7% 20.1 3 -85.1%
Depreciation 86 122 42.7% 204.7 229 11.9%
Profit before tax 1,585 1,822 14.9% 3,550 4,101 15.5%
Extraordinary inc/(exp) - -   - -  
Tax 519 623 19.9% 1,164 1,337 14.9%
Profit after tax/(loss) 1,066 1,200 12.5% 2,386 2,764 15.9%
Net profit margin (%) 14.1% 13.5%   15.0% 14.8%  
No. of shares (m)         42  
Diluted earnings per share (Rs)*         113  
Price to earnings ratio (x)*         35.40  
*trailing twelve months

What has driven performance in 2QCY13?
  • Revenues grew by 17% backed by a 7% rise in offtake during the quarter. The growth was primarily driven by an 18% rise in domestic operations that constitute more than 90% of overall sales. Exports grew by a tepid 4% during the quarter. Among product segments, Health Food Drinks (HFD) grew by 18% with Horlicks & Boost clocking 19% and 15% growths, respectively. Even packaged foods registered a robust growth of 19% with strong growth in biscuits and oats.

  • The robust sales failed to improve the company's operating performance. Due to a one-off cost of settlement dues at one of its factories, staff costs to sales ratio soared by 1.3% to 11.7%. Even the proportion of other expenses in sales increased by 1.5% to 21.8% due to non-recurring expenses arising from higher third-party manufacturing and repairs & maintenance charges. This has more than offset the input cost savings from easing commodity inflation. Resultantly, the operating margin contracted by 0.9% during the quarter.

  • At the net level, profits grew by 12.5% aided by 12% rise in operating profit. The other income comprising of business auxiliary income and interest income grew by 35% during the quarter. With the commissioning of new capacities, the depreciation charges increased by 43% during the quarter. Even the tax incidence increased to 34% from 32.8% in the year-ago quarter.

    Cost break-up
    As a % of sales 2QCY12 2QCY13 Change in basis points
    Cost of goods sold 35.6% 33.5% -209.94
    Staff costs 10.4% 11.7% 129.94
    Advertisement costs 15.3% 15.5% 14.44
    Other expenditure 20.2% 21.8% 150.64

What to expect?

Strong brand equity of the Horlicks brand has enabled GSKCH to report robust volume offtake despite price-hikes. Even its packed food business is registering good growth backed by rising demand for biscuits and oats. However the company's operating margin is under pressure due to higher ad-spends and staff costs. Going forward, rising price of inputs such as wheat, sugar and milk powder and high promotional spends in a competitive environment are expected to keep margins depressed.

We had given a Sell on the stock. At a price of Rs 3993, the stock is trading at 27 times our estimated CY14 earnings.

At current price levels, the stock remains overpriced and we re-iterate a SELL on the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

GSK CONSUMER SHARE PRICE


Feb 23, 2018 (Close)

TRACK GSK CONSUMER

  • Track your investment in GSK CONSUMER with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

GSK CONSUMER 8-QTR ANALYSIS

COMPARE GSK CONSUMER WITH

MARKET STATS