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GSK Pharma: Growth on track, however...
Aug 23, 2011

GSK Pharma has announced its second quarter results for the calendar year 2012 (2QCY12). The company has reported 13.1% YoY and 14.4% YoY growth in sales and net profits (excluding exceptional item) respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 13.1% YoY due to new product launches and expanded field force
  • Operating margins (EBITDA) reduce by 3% (as percentage of sales) to 34.7% due to higher staff and raw materials costs
  • Net profits grow by 14.4% YoY from a lower profit base for 2QCY11 due to extra ordinary loss and higher interest income.

Financial performance: A snapshot
(Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
Net sales 5,075 5,739 13.1% 10,541 11,837 12.3%
Expenditure 3,163 3,746 18.4% 6,572 7,665 16.6%
Operating profit (EBIDTA) 1,913 1,993 4.2% 3,968 4,172 5.1%
EBDITA margin (%) 37.7% 34.7%   37.6% 35.2%  
Other income - -   180 180 0.0%
Depreciation 41 49 21.7% 78 94 19.8%
Interest (202) (298)   (406) (629)  
Profit before tax 2,074 2,242 8.1% 4,476 4,887 9.2%
Tax 678 725 6.9% 1,468 1,507 2.7%
Exceptional Gain / (Loss) (106) (41)   (106) (1,900)  
Profit after tax/(loss) 1,290 1,475 14.4% 2,902 1,480 -49.0%
Net profit margin (%) 25.4% 25.7%   27.5% 12.5%  
No. of shares (m) 85 85   85 85  
Diluted earnings per share (Rs) 15 17   34 17  
Price to earnings ratio (x)*   31.2        
*On trailing 12 month basis

What has driven performance in 2QCY12?
  • GSK Pharma's topline during the quarter grew by 13.1% YoY. This can be attributed to the expansion of field force across India and new product launches. The company launched two products (Calpol-T and Ansolar) in this quarter and added another two in July 2011 in the oncology segment.

  • Operating margins (EBITDA) reduced by 3% (as percentage of sales) to 34.7% during the quarter. The staff costs increased 1% (as a % of sales) and the cost of raw materials increased by 1.3% (as a % of sales). The company's operating margins are the best when compared to its MNC peers and we expect them to improve going forward. This will largely be led by changes in its product mix as opposed to any cost reduction.

  • Net profits, without exceptional items, increased only by 9% YoY reflecting the margin contraction seen at the operating level. However, it was still higher than the growth in operating profits largely on account of higher interest income. Net profit (including exceptional item) grew by 14.4% YoY.

What to expect?
At the current price of Rs 2,148, the stock is trading at a multiple of 24 times our estimated CY13 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. The company intends to steadily introduce more products and move towards high margin products. Its focus on priority products, which account for a third of its revenues, and chronic therapy segment through in-licensing opportunities and brand acquisitions will augur well going forward. But even after taking into account the future growth prospects, current valuations do not leave much on the table for investors.

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