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Glaxo: Consolidation hits 3QFY02 - Views on News from Equitymaster
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  • Oct 25, 2001

    Glaxo: Consolidation hits 3QFY02

    Glaxo India has shown a sharp drop in sales and operating profit for the nine months ended FY02. The financials results for 9mFY02 are on a merged basis with Smithkline Beecham Pharma and hence not comparable. The approval has been effective with retrospective effect from Jan 1' 2001.

    (Rs m) 9mFY01 9mFY02 %Change 3QFY01 3QFY02 %Change
    Sales 6,822 6,762 -0.9% 2,122 2,835 33.6%
    Other Income 262 223 -15.0% 101 76 -25.0%
    Expenditure 6,162 6,179 0.3% 1,918 2,548 32.9%
    Operating Profit (EBDIT) 661 583 -11.8% 205 288 40.4%
    Operating Profit Margin (%) 9.7% 8.6%   9.6% 10.1%  
    Interest 73 71 -1.8% 26 29 11.1%
    Depreciation 119 126 6.2% 42 53 26.7%
    Profit before Tax 731 608 -16.8% 238 282 18.3%
    Extraordinary Income 155 394        
    Tax 297 294 -1.0% 85 101 18.8%
    Profit after Tax/(Loss) 589 708 20.1% 153 181 18.0%
    Net profit margin (%) 8.6% 10.5%   7.2% 6.4%  
    No. of Shares (eoy) (m) 60 60   60 60  
    Diluted Earnings per share* 13.1 15.8   10.2 12.1  
    P/E (at current price) 16.0   20.9  
    (*- annualised)            

    To make the results more comparable we have added the nine months results of Glaxo and SmithKline Pharma on a line to line basis. On a comparative basis, the merged entity recorded a drop in revenues by around 12%. PBT has fallen more sharply by around 36%. The drop in sales could be attributed to discontinuance of several brands by Glaxo and drop in revenues from vaccines business in case of SmithKline Pharma.

    Merged numbers YoY
      9mFY01 9mFY02 %Change
    Sales 9,242 8,073 -12.6%
    PBT 1,167 742 -36.4%
    Net profit 788 784 -0.5%

    Expenses for 9 months ended 30th September'01 include VRS costs (till date) and restructuring costs totalling Rs 181.8 m. A VRS for the company's factory at Worli, Mumbai is currently on and is expected to cost the company an additional sum of Rs 750 m. Glaxo's profitability was also affected due to higher provision for taxation in view of the new policy on deferred taxation.

    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.

    The merger is also expected to create considerable operational cost savings. The cumulative cost savings are estimated to be 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 the last one year.

    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.

    Currently, both Glaxo and SmithKline are trading seperately at Rs 254 and Rs 124 respectively, reflecting the swap ratio of 2:1. We expect the merged entity to record a net profit of around Rs 906 m for FY02 which translates into an EPS of Rs 12.2 for the current year.



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