About a fortnight ago, we had written a story on the sliding growth signals from SmithKline Beecham Consumer Healthcare (SBCH). A lot has changed since then. The uncertainty in the global economy post the attacks on the WTC have seen the Indian bourses slide by nearly 20% and valuations of all sectors have plunged. Even SBCH stock has declined by 11% in the last fortnight. Under these circumstances we revisit the company’s prospects and valuations.
In the earlier story we had pointed out that SBCH sales growth is showing signs of sluggishness. Also, in 2HFY02 the full impact of the deferred tax would be felt on the company. This is most likely to trim its bottomline growth for the full year FY02. There are also concerns over the parent’s 100% Indian subsidiaries.
However, post the US situation quite a few things have changed. There seems to be a newfound love for companies which are dependent on the domestic economy rather than on the global markets. FMCG is one such sector and SmithKline Beecham is one of the foremost players in this segment. In the previous five years the company’s turnover has grown at a CAGR of 15% and net profits at a CAGR of 24%. These figures are by far one of the best growth rates posted by an FMCG company. Its EPS has almost doubled in the last four years to Rs 24.7. Its exports accounted for around 4% of its FY01 sales.
Profit after tax
Operating profit margin
Net profit margin
Its brands ‘Horlicks’ and ‘Boost’ have a formidable presence in the malted beverage sector and show no signs of relenting to competition. Moreover, beyond 2001, SBCH is poised to reap the advantages of higher economies through the new plant to be commissioned in early 2002 (26,000 tonnes). This will enable it in overcoming potential capacity constraint in the future. The company is also looking at market expansion through lower-priced ‘Viva’ and ‘Maltova’, targeted at smaller town consumers.
Going forward, despite the concerns mentioned, the company is most likely to continue chugging along at similar growth rates in the long run. Good monsoons would also benefit the company.
At the current price of Rs 389 the stock is trading at a P/E of 14x projected FY02 earnings (excluding impact of deferred tax). The valuations look attractive against the backdrop of SmithKline’s historical growth momentum.
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.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407