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GSK Pharma: Competition takes toll

Nov 15, 2011

GSK Pharma has announced its third quarter results for the calendar year 2012 (3QCY11). The company has reported 4.3% YoY growth in sales and 7.6% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by a mere 4.3% YoY due to slower growth in acute therapies.
  • Operating margins (EBITDA) dive 680 bps (6.8%) to 29.8% due to higher raw materials costs and other expenditure.
  • Net profits decline by 7.6% YoY on the back of drastic fall in operating margins.

Financial performance snapshot
(Rs m) 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net sales 5,893 6,146 4.3% 16,433 17,983 9.4%
Expenditure 3,733 4,316 15.6% 10,305 11,981 16.3%
Operating profit (EBIDTA) 2,160 1,830 -15.2% 6,128 6,002 -2.1%
EBDITA margin (%) 36.6% 29.8%   37.3% 33.4%  
Other income - -   180 180  
Depreciation 41 49 19.5% 119 143 19.7%
Interest (256) (371) 45.0% (661) (1,000) 51.2%
Profit before tax 2,374 2,152 -9.4% 6,850 7,039 2.8%
Tax 792 692 -12.6% 2,259 2,199 -2.7%
Exceptional Gain / (Loss) (4) (1)   (111) (1,901)  
Forex Gain / (Loss) - -   - -  
Minority Interest - -   - -  
Profit after tax/(loss) 1,578 1,459 -7.6% 4,480 2,939 -34.4%
Net profit margin (%) 26.8% 23.7%   27.3% 16.3%  
No. of shares (m) 85 85   85 85  
Diluted earnings per share (Rs) 19 17   53 35  
Price to earnings ratio (x)*   41.5        
*On trailing 12 month basis

What has driven performance in 3QCY12?
  • GSK Pharma's net sales grew by a mere 4.3% YoY on account of intense competition and pricing pressure in the acute segment which contributes ~95% to its revenues. Most of its top brands witnessed subdued growth and the company did not launch any new products in the quarter.

  • Operating margins (EBITDA) nosedived by 680 bps (6.8%) to 29.8% due to 300 bps rise in the raw material costs and 320 bps rise in the other expenditure. This was partly due to the change in product mix and also due to increased overheads on new recruits.

  • Net profits fell by 7.6% YoY reflecting the margin contraction seen at the operating level. However, margin contraction was partly offset by higher interest income and lower tax outgo.

What to expect?
At the current price of Rs 2,010, the stock is trading at a multiple of 21.9 times our estimated CY13 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. The company intends to steadily introduce more products and move towards high margin products. Its focus on priority products, which account for a third of its revenues and chronic therapy segment through in-licensing opportunities and brand acquisitions will augur well going forward. But even after taking into account the future growth prospects, current valuations do not leave much on the table for investors.

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Jun 22, 2021 (Close)


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