Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 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.: Sluggish offtake & margins flat - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


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

GSK Cons.: Sluggish offtake & margins flat

Aug 28, 2014 | Updated on Aug 30, 2014

GSK Consumer Healthcare Ltd has announced first quarter results of financial year 2014-15(1QFY15) results. The company has reported a 8% YoY growth in sales and 8.5% YoY rise in net profits. Here is our analysis of the results

Performance summary
  • Glaxo SmithKline Consumer Healthcare (GSKCH) clocked a topline gowth of 8.5% backed by 10% growth in domestic sales, partially offset by 24% drop in export sales.
  • A sharp jump in input costs clipped operating margin by 0.5% during the quarter.
  • At the net level, margins remained flat due to higher other income earned and fall in depreciation outgo.

Standalone Financial Snapshot
Rs(m) 1QFY14 1QFY15 Change
Revenue 8,903 9,660 8.5%
Expenditure 7,343 8,013 9.1%
Operating profit (EBDITA) 1,560 1,646 5.5%
EBDITA margin (%) 17.5% 17.0% -0.5%
Other income 385 458 18.8%
Interest 2 2 18.8%
Depreciation 122 119 -2.4%
Profit before tax 1,822 1,983 8.8%
Extraordinary inc/(exp) - -  
Tax 623 682 9.5%
Profit after tax/(loss) 1,200 1,301 8.5%
Net profit margin (%) 13.5% 13.5% 0.0%
No. of shares (m)     42
Diluted earnings per share (Rs)*     126
Price to earnings ratio (x)*     42.81
*On trailing 12 months basis

What has driven performance in 1QFY15?
  • GSKCH posted an 8.5% revenue growth on a 10% growth in domestic sales. However, volume growth was muted at 3% with 7% higher realizations driving overall domestic growth. While Health Food Drinks (HFD) segment grew by 9%, the food segment comprising of biscuits, noodles and oats saw a steep rise of 32% during the quarter. The company made several innovative re-launches during the quarter such as Mother's Horlicks, Horlicks Lite and Chocolate Horlicks. Exports, that account for 6% of overall sales, fell by 24% due to certain one-offs and slowdown in Bangladesh.

  • The company saw no respite from high commodity inflation particularly in milk and milk powders. The cost of goods sold to sales ratio jumped by 2.9% during the quarter. However the impact was partly neutralized by rationalization in staff costs, ad-spends and other expenses. Each of these expenses as a proportion of sales fell by 0.8% during the quarter. The operating margin contracted by 0.5% for the quarter.

  • At the net level, the company has been able to maintain margin at 13.5% aided by an 18.8% jump in other income as well as lower depreciation outgo. The tax incidence increased to 34.4% in 1QFY15 from 34.2% in 1QFY14.

    Cost break-up
    As a % of sales 1QFY14 1QFY15 Change in basis points
    Cost of goods sold 33.5% 36.4% 289.02
    Staff costs 11.7% 10.9% -81.62
    Advertisement costs 15.5% 14.6% -81.28
    Other expenditure 21.8% 21.0% -78.16
What to expect?

GSKCH remains hit by slow offtake of its mainstay product HFD. However, its oats segment has been performing well. The company has been launching innovative products to battle slowdown. Going ahead, the company's sales growth may improve on expected revival in urban demand.

We had given a Sell on the stock. At a price of Rs 5379, the stock is trading at 30 times our estimated FY17 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
To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Feb 22, 2019 (Close)


  • 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