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GSK Cons.: Strong growth in earnings - Views on News from Equitymaster

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GSK Cons.: Strong growth in earnings
Nov 2, 2012

GSK Consumer Healthcare Ltd has announced third quarter results of calendar 2012(3QCY12) results. The company has reported a 13% YoY and 25% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Revenues increased by 13% YoY in 3QFY12. For 9mCY12, topline is up by 13.8%.
  • Operating margin improved by 80 basis points backed by controlled cost of goods sold & other expenditure. In 9mCY12, the operating margin expanded by 40 basis points.
  • Earnings surged by 23.6% aided by reduction in interest charges and depreciation outgo. For 9mCY12, earnings were up by 24%.

Standalone Financial Snapshot
Rs(m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Revenue 7,446 8,577 15.2% 21458.9 24525.4 14.3%
Expenditure 6,021 6,871 14.1% 17201.3 19559.9 13.7%
Operating profit (EBDITA) 1,425 1,706 19.7% 4,258 4,966 16.6%
EBDITA margin (%) 19.1% 19.9%   19.8% 20.2%  
Other income 231 276 19.5% 536.7 791.3 47.4%
Interest 10   3 -73.8% 25.9 22.8 -12.0%
Depreciation 117 77 -33.9% 338.9 281.7 -16.9%
Profit before tax 1,530 1,903 24.4% 4,430 5,452 23.1%
Extraordinary inc/(exp) - -   - -  
Tax 499 617 23.6% 1468.4 1781.1 21.3%
Profit after tax/(loss) 1,030 1,286 24.8% 2,961 3,671 24.0%
Net profit margin (%) 13.8% 15.0%   13.8% 15.0%  
No. of shares (m)         42  
Diluted earnings per share (Rs)*         101  
Price to earnings ratio (x)*         30.45  
*trailing twelve months

What has driven performance in 3QCY12?
  • GSK Consumer Healthcare (GSKCH) registered a 15% rise in topline on a 13% increase in turnover.

  • The company continued to post incremental margins backed by rationalisation in the cost of goods sold and other expenditure. As a proportion of sales, the cost of goods sold and other expenses fell by 46 basis points and 53 basis points, respectively during the quarter. This cost saving has been able to offset the rise in staff costs and advertisement expenses. GSKCH's operating margin improved by 80 basis points during the quarter.

  • Aided by a 34% reduction in depreciation outgo and lower interest charges coupled with 20% higher operating income, GSKCH clocked a robust 25% rise in earnings for the quarter.

    Cost break-up
    As a % of sales 3QCY11 3QCY12 Change in basis points
    Cost of goods sold 36.7% 36.2% -45.74
    Staff costs 8.9% 9.0% 13.80
    Advertisement costs 16.1% 16.2% 9.22
    Other expenditure 19.2% 18.7% -52.60

What to expect?
At a price of Rs 3085, the stock is trading at 22 times our estimated CY14 earnings.

We had given a Sell on the stock. At current levels, the stock appears overpriced and we continue to re-iterate a SELL on the stock.

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