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GSK Pharma: Poor performance continues - Views on News from Equitymaster

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GSK Pharma: Poor performance continues
Nov 22, 2013

GSK Pharma has announced its 3QCY13 results. The company has reported a decline of 7.2% YoY and 33.7% YoY in net sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales decline by 7.2% YoY during the quarter.
  • Operating margins decline by 12.3% to 18.2% during 3QCY13 due to increase in operating expenses and decline in operating income.
  • Led by the poor performance at topline and operating profit level, bottomline falls by 34% YoY.

Standalone financial snapshot
(Rs m) 3QCY12 3QCY13 Change 9MCY12 9MCY13 Change
Net sales 6,685 6,205 -7.2% 19,432 18,895 -2.8%
Operating Income 68 61 -10.1% 210 194 -7.8%
Expenditure 4,696 5,126 9.2% 13,457 15,051 11.8%
Operating profit (EBDITA) 2,057 1,141 -44.6% 6,185 4,038 -34.7%
EBDITA margin (%) 30.5% 18.2%   31.5% 21.2%  
Other income 410 394 -4.0% 1,552 1,532 -1.3%
Depreciation 48 50 2.5% 133 141 6.4%
Exceptional gain/(loss) (166) (8)   (1,185) 177  
Profit before tax 2,253 1,477 -34.4% 6,419 5,607 -12.7%
Tax 730 468 -36.0% 2,030 1,756 -13.5%
Profit after tax/(loss) 1,523 1,010 -33.7% 4,389 3,851 -12.3%
Net profit margin (%) 22.8% 16.3%   22.6% 20.4%  
No. of shares (m)         847.0  
Diluted base earnings per share (Rs)         65.7  
Price to earnings ratio (x)*         35.2  
*based on trailing 12 months earnings

What has driven performance in 3QCY13?
  • Net sales declined by 7.2% YoY during the quarter. The company generates large part of its revenues from the core pharmaceuticals segment. Like it was for most other pharma companies, growth was impacted due to implementation of the new pricing policy and disruptions in the trade channels. One should also note that the company generates considerable revenues from the anti-infectives segment, which witnessed some pressures during the quarter.

  • Operating margins declined by 12.3% to 18.2% in 3QCY13 due to increase in operating expenses and decline in operating income. During the quarter, the company's material costs declined while other expenses and employee costs went up. This resulted into an increase in other operating expenses.

  • Led by the poor performance at the topline and operating profit level, bottomline declined by 34% YoY during 3QCY13. Even a sharp fall in taxes was not enough to arrest this fall. Excluding the extraordinary losses during both the periods, net profits fell by 40% YoY.
What to expect?
At the current price of Rs 2,404, the stock is trading at a multiple of 23.4 times our estimated CY15 earnings. GSK Pharma has a strong product pipeline and brand building ability as shown in the past. However, large part of the company's portfolio is exposed to the pricing policy, and hence its revenues are getting impacted and margins have also come under pressure. Secondly, its higher dependence on the acute segment and largely in the anti-infective segment raises concern about its growth going forward. Most importantly, valuations are expensive. We thus reiterate our SELL rating on the stock.

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Sep 26, 2018 12:29 PM


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