MNC pharma major, Glaxo (GSK Pharma), reported 20% growth in revenues in 3QCY04. Consequently, the company finished the nine month period ended September 2004 with revenue growth of nearly 14% YoY. The bottomline of the company grew by almost three fold on back of extraordinary income from sale of its Worli (Mumbai) property. The operating margin also saw an expansion of nearly 7%.
Operating profit (EBDITA)
Operating profit margin (%)
Profit before tax
Profit after tax/(loss)
Net profit margin (%)
No. of shares (m)
Diluted earnings per share (Rs)*
P/E ratio (x)
Whatís the companyís business?
GSK Pharma is the largest pharma company in the Indian market with a share of 6.3%. It is a 49% subsidiary of US$ 37 bn Glaxo group - the world's second largest pharma company with a R&D chest of US$ 4 bn. GSK's product portfolio boasts of some of the leading brands like Zinetac, Betnesol, Cobadex and Zevit in the domestic pharma market. Most of the company's products face stiff price competition from domestic players and growth in the company has been a key area of concern off late. The company underwent a restructuring exercise and effect of the same was evident in its 2003 results. It derives its revenues from two segments viz. pharmaceuticals and others (animal healthcare). The parent has recently signaled its willingness to launch new products in the Indian market post the introduction of the new patent regime.
What has driven performance in 3QCY04?
Buoyancy backed by merger gains: The pharmaceutical segment grew by 21% owing to the effect of merger of Burroughs Wellcome with the company. If one excludes this, the company has grown by approximately 13% on a like to like basis during the quarter. However, total revenue growth was impacted by the decline the animal health care business (down 1.5% YoY in 3QCY04). This business segment accounts for about 17% of revenues. However, going forward, we expect growth to accelerate from new product launches towards the end of the calendar year in CVS, CNS and diabetology segments. T
(as % of sales)
(as % of sales)
(as % of sales)
Impressive margin expansion: There was a 660 basis-point expansion in operating margins, mainly on account of higher contribution from power brands. The gross margin has expanded on account of savings from all fronts. The effect of VRS has also been showing up, as the employee cost as a percentage of sales is down by 100 basis points. Also, better product mixed has helped the company save raw material costs.
Net profit: At the net profit level, profit margin increased three fold. However, this should be viewed in the context of extraordinary income of Rs 934 m, which largely accrued from the sale of Worli (Mumbai) property of the company. If one excludes the effect of extraordinary income, net margins have increased by 260 basis points or 2.6%.
Over last few quarters
Over the last few quarters the margins, both at operating and net levels, have improved owing to the restructuring exercise undertaken by the company in the last few years. However, it seems that the company has now achieved the pinnacle of margins and the growth in the bottomline may now come from the topline growth.
What to expect?
The stock is trading at Rs 678 implying a P/E multiple of 14 times annualised 9mCY04 earnings. The stock might look cheap at the current valuation but investors should exercise caution considering the fact that the EPS also incorporates Rs 12 per share from the property sale. Excluding the extraordinary income, the stock trades at 17 times annualised 9mCY04 earnings.
The company's core business has done very well. The effect of restructuring is reflected in the last few quarters and the impending transition into the patent regime will result in the company launching new products from the parentís portfolio. Going forward, the company is also likely to start clinical trials, which indicates the growing interest of the parent towards India.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407