gskpharma-3qcy2012

7/30/2019 GSKPharma-3QCY2012

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Please refer to important disclosures at the end of this report 1

Other income 42 39 7.4 44 (5.3)

Gross profit 384 381 0.7 366 5.0

Operating profit 188 203 (7.1) 176 7.2

Source: Company, Angel Research

GlaxoSmithKline Pharma (Glaxo) reported its 3QCY2012 results, just-in-line withestimates both on the top-line and bottom-line front. The OPM at 28.2% came

lower than our expectations of ~31.1%. Overall, the company posted net sales

and adjusted net profit of `669cr and `164cr, respectively.

For 3QCY2012, Glaxo reported a 10.0%

yoy growth in its net sales to`669cr, just in line with our estimate of`688cr. The

companys gross margin came in at 57.4%, lower than our estimate of 60.5%.

This aided the OPM to come in at 28.2%, which was lower than our estimate of

31.1%, for 3QCY2012. During the quarter, Glaxo reported a growth of 12.0%

yoy in its adjusted net profit to`164cr, just-in-line with our expectation of`167cr.

: We expect Glaxos net sales to post a 12.2% CAGR to

`2,993cr and EPS to register an 8.7% CAGR to `82.4 over CY201113E.

At current levels, the stock is trading 26.3x and 24.2x CY2012E and CY2013E

earnings, respectively.

Key financials (Consolidated)

% chg 12.8 10.6 11.4 12.9

% chg 14.3 1.7 9.0 8.4

EBITDA (%) 35.3 31.2 31.7 31.2

P/E (x) 29.1 28.6 26.3 24.2

RoE (%) 31.1 30.4 30.8 29.0

RoCE (%) 40.6 38.2 40.5 38.9

P/BV (x) 8.7 8.7 7.5 6.6

EV/Sales (x) 6.9 6.3 5.5 4.7

EV/EBITDA (x) 19.7 20.0 17.3 15.2


CMP `1,997

Target Price -

Investment Period -

Stock Info

Sector

(2,038)

Bloomberg Code

Shareholding Pattern (%)

Promoters 50.7

MF / Banks / Indian Fls 14.8

FII / NRIs / OCBs 20.4

Indian Public / Others 14.1

Abs. (%) 3m 1yr 3yr

Sensex 6.4 7.6 13.2

Glaxo (5.2) (0.5) 27.1

Face Value (`)

BSE Sensex

Nifty

Reuters Code

5,686

GLAX.BO

GLXO@IN

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

Net Debt (`cr)

18,684

10

16,912

0.2

2,338/1,830

6,684

+91 22 39357800 Ext: 6806

[email protected]

Performance Highlights

3QCY2012 Result Update | Pharmaceutical

November 9, 2012


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Glaxo | 3QCY2012 Result Update

November 9, 2012 2

Exhibit 1:3QCY2012 Standalone performance

Other income 42 39 44 90 (133)

Gross profit 384 381 0.7 366 1,126 1,096

Operating profit 188 203 (7.1) 176 7.2 565 545 3.7

Interest 0 0 - 0 - 0 0 -

Depreciation & Amortisation 5 4 12.6 5 0.0 13 14 (7.0)

PBT & Exceptional Items 225 237 (5.1) 215 4.8 642 397 61.6

Less : Exceptional Items (11) (6) - (0) - (80) (190)

Provision for taxation 73 74 (1.1) 69 5.5 203 103 96.7


Exhibit 2:3QCY2012 Actual vs Angel estimates

Other income 42 39 7.4

Operating profit 188 214 (11.8)

Tax 73 81 (9.3)


Revenue grew by 10.0%, just in line with estimates

For 3QCY2012, Glaxo reported a 10.0% yoy growth in its net sales to`669cr, just

in line with our estimate. The top-line growth came on the back of an 11% yoy

growth in the core pharmaceuticals business.

During the quarter, the company launched Zimivir for herpes treatment. The

company expanded its CNS portfolio by launching Ictacetam used in the treatment

of epilepsy.


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November 9, 2012 3

Exhibit 3:Sales trend

608

566

623

652669

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

400

500

600

700

3QCY2011 4QCY2011 1QCY2012 2QCY2012 3QCY2012

(%)

(`cr)

Sales Growth (YoY)


OPM comes in at 28.2%

The companys gross margin came in at 57.4%, lower than our expectation of

60.0%. This led to an OPM of 28.2%, which was lower than our estimate of

31.1%, for 3QCY2012. However on a yoy basis, the OPM was almost flat (28.9%

in 3QCY2011).

Exhibit 4:OPM trend

28.9

31.1 31.4 31.1

28.2

25.0

30.0

35.0


(%)


Net profit just-in-line with estimates

During the quarter, Glaxo reported a growth of 12.0% yoy in its adjusted net profit

to`164cr, justinline with our expectation of`167cr. This was mainly on the back

of a lower-than-expected OPM during the quarter.


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November 9, 2012 4

Exhibit 5:Adjusted net profit trend

146 147

187170 164

0

50

100

150

200

250


(`cr)



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November 9, 2012 5

Recommendation rationale

: Glaxo is among the top five players in the

Indian market, having a market share of ~5%. Post the IPR regime, the company

has renewed its focus on the domestic market with the launch of five patented

products (mainlyTykerb and Rotarix) in the last two years. New product launches

since CY2007 has been a key growth driver for the company and it accounted for

27% yoy top-line growth registered by the company in CY2011. With this the new

product contribution to sales has come to around 9% in CY2011. Further, in-line

with market dynamics, Glaxo has launched patented products at discounts in India

compared to other markets. Thus, in CY2012, we expect the company to launch

46 branded generic products.

Overall, for CY2011-13E we expect the domestic formulation business of the

company to grow at a CAGR of 12%.

Outlook and valuation:

Glaxo has a strong balance sheet with cash of ~`2,000cr, which could be used for

future acquisitions or higher dividend payouts. We expect Glaxos net sales to post

a 12.2% CAGR to `2,993cr and EPS to register an 8.7% CAGR to `82.7 over

CY201113E. At current levels, the stock is trading 26.3x and 24.2x CY2012E and

CY2013E earnings, respectively.

Exhibit 6:Key assumptions

Sales growth (%) 11.4 12.9Growth in employee expenses (%) 15.0 15.0

Operating margin (%) 31.7 31.2

Capex (`cr) 17.0 21.0


Exhibit 7:One-year forward PE

-

500

1,000

1,500

2,000

2,500

3,000

May-07

Aug-07

Nov-07

Mar-08

Jun-08

Oct-08

Jan-09

May-09

Aug-09

Dec-09

Mar-10

Jul-10

Oct-10

Jan-11

May-11

Aug-11

Dec-11

Mar-12

Jul-12

Oct-12

Price 15x 20x 25x 30x

(`)



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November 9, 2012 6

Exhibit 8:Recommendation summary

Alembic Pharma. Buy 69 91 32.6 7.4 0.8 4.9 14.8 29.4 30.0Aurobindo Pharma. Neutral 170 - - 13.5 1.3 9.2 61.1 10.4 16.4

Sanofi India* Neutral 2,193 - - 21.0 2.7 17.6 12.0 16.1 17.0

Cadila Healthcare Accumulate 846 926 9.5 19.6 2.6 13.3 18.7 19.3 26.6

Cipla Accumulate 394 419 6.5 18.8 3.2 13.5 21.2 18.4 17.2

Dr Reddy's Neutral 1,768 - - 19.0 2.8 13.4 2.3 15.1 20.8

Dishman Pharma Buy 109 145 33.5 9.6 1.1 6.3 26.6 10.6 11.0

Indoco Remedies Buy 66 89 33.9 7.5 0.9 6.0 32.8 15.5 17.0

Ipca labs Accumulate 427 485 13.7 11.4 1.8 8.7 30.6 26.1 26.0

Lupin Accumulate 583 652 11.8 18.8 2.6 13.2 26.5 22.5 24.7

Orchid Chemicals Neutral 107 - - 8.0 0.8 5.6 (1.2) 4.8 7.3

Ranbaxy* Neutral 542 - - 16.9 1.9 11.8 44.8 15.8 28.9

Sun Pharma Neutral 695 - - 23.7 4.6 10.7 0.1 26.7 18.8

Source: Company, Angel Research; Note: * December year ending;

Background

GlaxoSmithKline Pharmaceuticals (Glaxo) is the third largest pharmaceutical player

in the Indian market with a market share of 5%. The companys product portfolio

includes both, prescription medicines and vaccines. Glaxo sells prescription

medicines across therapeutic areas such as anti-infectives, dermatology,

gynaecology, diabetes, oncology, cardiovascular diseases and respiratory

diseases. A large portion of the companys revenue comes from the acute

therapeutic portfolio. However, the company is now scouting for opportunities in

high-growth therapeutic areas such as CVS, CNS, diabetes and oncology. Further,

with a strong parentage, Glaxo plans to increase its product portfolio through

patented launches and vaccines.


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November 9, 2012 7

Profit & loss statement

Gross sales 1,787 1,950 2,195 2,433 2,703 3,054

Less: Excise duty 94 43 44 55 52 61

Other operating income 3 3 5 1 5 5

% chg 5.2 12.6 12.9 10.3 11.6 12.9

Total expenditure 1,098 1,234 1,392 1,635 1,811 2,061

Net raw materials 656 702 788 919 1,066 1,212

Other Mfg costs 97 109 126 122 94 105

Personnel 173 209 241 279 321 370

Other 173 213 237 314 330 374

% chg 15.5 13.2 12.5 (2.0) 13.0 11.0

(% of Net Sales) 35.2 35.3 35.3 31.2 31.7 31.2

Depreciation& amortisation 16 16 18 20 17 18

% chg 17.0 13.6 12.7 (2.5) 13.9 11.1

(% of Net Sales) 34.2 34.5 34.4 30.4 31.0 30.6

Interest & other charges 1 0 1 0 - -

Other income 120 101 126 182 122 122

(% of PBT)

Share in profit of Associates - - - - - -

% chg 10.8 8.6 14.5 3.9 4.9 9.6

Extraordinary expense/(Inc.) (128) (7) 18 301 - -

Tax 238 261 293 176 306 344

(% of PBT) 28.7 33.9 34.4 29.1 32.2 33.0

Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

Prior period items - - - - - -

Exceptional items - - - -

% chg 7.4 37.8 15.4 1.7 9.0 8.4

(% of Net Sales) 21.6 26.4 27.0 24.8 24.3 23.3

% chg (33.9) 37.8 15.4 1.7 9.0 8.4


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November 9, 2012 8

Balance Sheet

Equity share capital 85 85 85 85 85 85Preference Capital - - - - - -

Reserves& surplus 1,491 1,701 1,867 1,851 2,156 2,486

Minority Interest

Total loans 6 5 5 5 5 5

Deferred tax liability (30) (45) (57) (62) (62) (62)

Gross block 326 333 363 316 337 358

Less: Acc. depreciation 236 241 254 217 233 251

Capital work-in-progress 10 21 9 25 21 21

Goodwill

Current assets 1,452 2,183 2,510 2,761 3,193 3,681

Cash 957 1,734 2,003 2,043 2,398 2,783

Loans & advances 204 138 174 300 265 299

Other 291 311 333 419 530 599

Current liabilities 730 699 845 1,119 1,246 1,407

Mis. Exp. not written off - - - - - -


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November 9, 2012 9

Cash flow statement

Profit before tax andexceptionals

829 769 854 605 950 1,042

Depreciation 16 16 18 20 17 18

(Inc)/Dec in working capital 7 15 88 63 50 58

Direct taxes paid 246 185 314 188 306 344

(Inc.)/Dec.in fixed assets (20) (18) (17) 30 (17) (21)

(Inc.)/Dec. in investments (617) (581) (31) (6) - -

Issue of equity - - - - - -

Inc./(Dec.) in loans 0 0 0.26 (0) - -

Dividend paid (Incl. Tax) (355) (394) (296) (444) (339) (367)

Others 1,187 1,156 (34) (39) - -

Inc./(Dec.) in cash 802 777 269 40 355 386


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November 9, 2012 10

Key ratio

P/E (on FDEPS) 46.3 33.6 29.1 28.6 26.3 24.2P/CEPS 27.8 32.3 29.2 37.7 25.6 23.6

P/BV 10.7 9.5 8.7 8.7 7.5 6.6

Dividend yield (%) 2.0 1.5 2.0 2.3 1.5 1.7

EV/Sales 9.4 8.0 6.9 6.3 5.5 4.7

EV/EBITDA 26.8 22.5 19.7 20.0 17.3 15.2

EV / Total Assets 10.3 8.7 7.8 7.9 6.6 5.6

EPS (Basic) 43.1 59.4 68.6 69.8 76.0 82.4

EPS (fully diluted) 43.1 59.4 68.6 69.8 76.0 82.4

Cash EPS 71.7 61.9 68.3 53.0 78.0 84.5

DPS 40.0 30.0 40.0 45.0 30.4 33.0

Book Value 186.0 210.9 230.4 228.5 264.5 303.5

RoCE (Pre-tax) 39.7 39.9 40.6 38.2 40.5 38.9

Angel ROIC (Pre-tax) - - - - - -

RoE 24.7 29.9 31.1 30.4 30.8 29.0

Asset Turnover (Gross Block) 5.3 5.8 6.2 7.0 8.1 8.6

Inventory / Sales (days) 48 47 46 46 45 54

Receivables (days) 10 11 9 11 14 17

Payables (days) 80 81 82 72 70 82

WC cycle (ex-cash) (days) 98 90 81 94 104 103

Net debt to equity (0.6) (1.0) (1.0) (1.1) (1.1) (1.1)

Net debt to EBITDA (1.6) (2.6) (2.6) (2.7) (2.8) (3.0)

Interest Coverage (EBIT / Int.) - - - - - -


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November 9, 2012 11

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Glaxo Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

gskpharma-3qcy2012

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