Malted beverage major, GlaxoSmithKline Consumer Healthcare (SBCH), has seen its stock price crash to new lows. The counter has seen an over 30% decline in the last 5 months. The pessimism has come about ever since the company declared a huge 26% drop in June quarter topline and 45% decline in bottomline.
Not many in the analyst community could foresee this reversal in fortunes. After all, SBCH is in a business, which has been for long considered a staple diet for a large part of urban India. Even in the difficult market conditions of FY02, the company managed to log in a 14% topline and over 16% bottomline growth. Not many in the FMCG spectrum managed to do that.
That said, the past 3 quarters gave enough indications that the slowdown is finally catching up with this malted beverage major. The topline growth for December (8% growth), March (0.4%) and June quarter (-26%) does indicate the declining trend. However, it does not seem possible that the company’s products (Horlicks, Boost), which have been for decades considered staple diet, suddenly see such a significant degrowth. For that the competition must have had applied tremendous marketing pull, as well as the consumers themselves may have seen a massive shift in consumption habits.
But the shift in habits is steady and not overnight. So in all likelihood, the huge dip in topline seems like an inventory pipeline correction. While one cannot overlook the impact of slowdown on the topline, a significant portion of the dip seems a result of the aforesaid correction. SBCH is also suffering due to higher depreciation charges. A delay in stabilising the new plant has also affected the cost saving advantage.
The stock currently trades at 5-year lows of Rs 272, implying a P/E of 10x FY03E expected earnings. While in the near term, the company may be in a spot of bother, but these valuations are worth getting into a business that has for long shown resilience and steady growth. Also, the management has indicated that the inventory correction is almost over.
GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.
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