Glaxo: Integration underway - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Glaxo: Integration underway

Sep 14, 2001

The operational integration of Glaxo with SmithKline Pharma seems to be through before its proposed merger by FY03. The management structure of the company has also undergone a change in the recent past. In a bid to revive its sales growth, the company has initiated a major rejuvenation of its product portfolio to focus on high margin products and align itself with that of SmithKline Pharma. The integration of its portfolio with SmithKline is expected to create a complimentary basket of products. The operational savings emerging from the merger is also widely known by now. Whether the new company, GSK India actually benefits from these exercises remains a question which only time would answer. Meanwhile the markets seem to be adopting a wait and watch approach.

Glaxo regrouped all its brands under four main categories based on their profitability and future potential. These categories are Big Bets, Strategic, Bread & Butter and Tail end. Big Bets and Strategic products account for just 27% of sales but contribute around 42% of the total gross profits, reflecting premium margins commanded by these products. While the company intends to commit adequate resources for the first two categories, the bread and butter brands would receive support based on their potential to become strategic brands.

Glaxo- betting on strategic brands
Brand Category % to total sales Gross Margins (%)
Big Bets 15% 50-55%
Strategic products 12% 40-45%
Others 73% 15-25%

The company’s performance in terms of sales growth as well on the operating margin front has been quite volatile in last three years as shown in the chart below. Though sales growth is expected to remain flat in the near term, operating margins are expected to improve in FY03.

A merger with SmithKline’s portfolio would also help…
Except an overlap in vitamins segment, Glaxo’s product portfolio is complimentary with that of SmithKline Pharma. While Glaxo has strong presence in Vitamins and Dermatology segments, SmithKline Pharma is increasing its focus on vaccines segment. The merged entity would have a wider product portfolio across various therapeutic segments. A wider basket of products enables cross selling of products to the same set of doctors and physicians.

Particulars Glaxo SmithKline Pharma GSK
Market Share 5.7 1.3 7
No. of Products 200 48 248

The merger is also expected to create considerable operational cost savings. The cumulative cost savings are estimated in the range of Rs 470 m by FY03. The primary areas for cost savings would be bulk sourcing of raw materials, reduction in staff costs and shift from high cost manufacturing centers. The merger effect coupled with Glaxo’s focus on strategic brands is expected to result in operating margins improvement. The company has also launched several new products in last one year.

At the current market price of Rs 291, the stock is trading at 29 times its expected earnings for FY02. In the past, the stock used to command premium to its peers. However, the valuation premium has been shrinking in last one year due to slowdown in company’s performance.

The markets would be closely watching the results of current restructuring exercise and benefits emerging from operational synergies with SmithKline Pharma. In the long run however, the company’s growth would depend on the new parent’s commitment towards GSK India in terms of new product introductions. Though usual concerns over 100% subsidiary are subdued in case of Glaxo at this point of time, the parent company does have a subsidiary operating in India viz, SmithKline Beecham Asia Pvt. Ltd.

Equitymaster requests your view! Post a comment on "Glaxo: Integration underway ". Click here!

  

More Views on News

GSK PHARMA 2020-21 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of GSK PHARMA for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of GSK PHARMA. Also includes updates on the valuation of GSK PHARMA.

GSK PHARMA Announces Quarterly Results (3QFY21); Net Profit Up 124.4% (Quarterly Result Update)

Feb 10, 2021 | Updated on Feb 10, 2021

For the quarter ended December 2020, GSK PHARMA has posted a net profit of Rs 2 bn (up 124.4% YoY). Sales on the other hand came in at Rs 9 bn (up 10.2% YoY). Read on for a complete analysis of GSK PHARMA's quarterly results.

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

GSK PHARMA SHARE PRICE


Dec 6, 2021 03:27 PM

TRACK GSK PHARMA

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

GSK PHARMA - MYLAN COMPARISON

COMPARE GSK PHARMA WITH

MARKET STATS