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GSK Consumer: Core business does well - Views on News from Equitymaster

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GSK Consumer: Core business does well

Oct 23, 2009

Performance summary
  • The company has seen strong sales with growth of 17% YoY for 3QCY09.
  • Operating (EBITDA) margins for the company in 3QCY09 expanded to 18.4%. This increase has been due to lower raw material and staff costs as a percentage of net sales partially offset by an increase in advertising and promotion spending which grew by 67% YoY in 3QCY09.
  • Bottom line for 3QCY09 grew by 13% YoY on the back of higher sales and higher operating income. Net profit margin was lower in 3QCY09 as a percentage of sales at 11.8% due to lower other income and higher tax expenses.
  • Net profit for 9mCY09 grew by 28% YoY on the back of higher sale and operating income.

Rs(m) 3QCY08 3QCY09 (%) Change 9mCY08 9mCY09 Change
Net sales 4,365 5,103 16.9% 12,495 15,506 24.1%
Expenditure 3,597 4,165 15.8% 10,116 12,294 21.5%
Operating profit (EBDITA) 768 938 22.1% 2,379 3,212 35.0%
EBDITA margin (%) 17.6% 18.4%   19.0% 20.7% 8.8%
Other income 128 61 -52.7% 320 203 -36.4%
Interest 14 10 -29.3% 39 34 -14.7%
Depreciation 104 105 0.6% 313 316 1.1%
Profit before tax 778 884 13.6% 2,346 3,066 30.7%
Extraordinary inc/(exp) 0 0   0 0  
Tax 247 283 14.6% 789 1,075 36.2%
Profit after tax/(loss) 530 600 13.2% 1,558 1,991 27.8%
Net profit margin (%) 12.1% 11.8%   12.5% 12.8%  
No. of shares (m) 42.1 42.1   42.1 42.1  
Diluted earnings per share (Rs)*         55.1  
Price to earnings ratio (x)*         22.7  

What has driven performance in 3QCY09?
  • The company witnessed strong growth in 3QCY09 on the back of robust portfolio growth. Horlicks Bar and Junior Horlicks Biscuits which were the new products launched showed robust sales. Exports which contribute 8-9% of the company’s sales showed robust growth.

  • The operating income of GSK increased by 22% on the back of lower input costs (2.4%) as a percentage of sales. Employee cost as a percentage of sales also fell by 0.4% to stand at 10% for the quarter.

  • Net profit was higher during the quarter due to income in sales and higher operating margins. However, the profits were negatively affected by lower other income and higher effective tax rate.

What to expect?
At Rs.1,250, the stock is trading at 17 times our estimated CY11 earnings. We are trying to get a meeting with the management and will update our analysis once we meet them.

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Feb 19, 2019 (Close)


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