29 July 2020
1QFY21 Results Update | Sector: Healthcare
GSK Pharma
Estimate change
TP change
Rating change
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CMP: INR1,482
TP: INR1,355 (-9%)
COVID-19-led weakness in performance
Outlook to improve gradually
Neutral
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
GLXO IN
169
251.1 / 3.3
1722 / 1033
-9/-5/23
95
GSK Pharma (GLXO)’s performance for the quarter was deeply impacted by
the COVID-19-led disruption. As a result, the company posted the lowest
revenue recorded in the past 16 quarters. The severity amplified with
reduced operating leverage. The outlook is expected to gradually improve
with the easing of the lockdown.
We reduce our EPS estimate by 26.3%/11.7% for FY21/FY22 to factor COVID-
19-led weakness in the Prescription and Vaccination segments. We continue
to value GLXO at 37x 12M forward earnings (25% discount to its three-year
average) to arrive at TP of INR1,355. Maintain Neutral.
GSK Pharma revenues were down 17.7% to INR6.5b (v/s est. of INR7.8b).
GM expanded 230bp YoY to 60.3%, led by a better product mix.
However, the EBITDA margin contracted 340bp YoY to 17.6% on higher
employee costs / other expenditure (+530bp/+40bp YoY as a percentage of
sales), offsetting the benefit of better GM.
EBITDA declined by 31% YoY to INR1.1b (v/s est. of INR1.7b).
Adjusting for interest on income tax refund in other income, PAT was down
33% YoY to INR787m (our estimate: INR1.3b).
GLXO’s top two therapies (contributing ~40% to overall sales), Anti-Infective
and Vaccine, saw decline of ~14% and ~28% YoY, respectively, dragging
down sales growth for the quarter.
Particularly, Augmentin/Ceftum (top Anti-Infective brands) declined 6%/16%
YoY for the quarter.
The deferment of vaccination on account of COVID-19 led 14% YoY decline
in Synflorix sales for the quarter.
On a 12M basis, GLAXO took a price hike of 6.7%, offset (to some extent) by
flat new launches and volume decline of 3.9% on a YoY basis.
With the focus on key brands, meaningful (290bp) improvement was
witnessed in the EBITDA margin over FY18–20. However, the benefit of a
superior margin profile is expected to be offset by muted revenue growth
(led by slowdown due to COVID-19) and reduced operating leverage.
Accordingly, we reduce our EPS estimate by 26.3%/11.7% for FY21/FY22 to
factor COVID-19-led challenges, and expect a 10% earnings CAGR over FY20–
22.
We continue to value GLXO at 37x 12M forward earnings to arrive at TP of
INR1,355.
We maintain
Neutral
as the valuation adequately factors the upside.
Lower revenue, reduced operating leverage result in earnings decline
Financials & valuations (INR b)
Y/E MARCH
2020 2021E 2022E
32.2 31.0 34.0
Sales
6.6
6.5
7.4
EBITDA
4.8
4.6
5.7
Adj. PAT
EBIT Margin (%)
17.8 18.4 20.1
28.2 26.9 33.9
Cons. Adj. EPS (INR)
14.6 -4.5 26.0
EPS Gr. (%)
107.5 113.3 124.2
BV/Sh. (INR)
Ratios
Net D:E
-0.6 -0.5 -0.4
26.2 23.8 27.3
RoE (%)
24.3 24.7 28.9
RoCE (%)
Payout (%)
85.4 89.4 71.0
Valuations
52.9 55.3 43.9
P/E (x)
36.8 37.6 32.9
EV/EBITDA (x)
1.3
1.3
1.3
Div. Yield (%)
FCF Yield (%)
1.1
1.0
1.6
EV/Sales (x)
7.5
7.9
7.1
Key highlights
Valuation and view
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
75.0
75.0
75.0
12.1
11.4
11.1
0.2
0.3
1.4
12.7
13.3
12.5
FII Includes depository receipts
Research Analyst: Tushar Manudhane
(Tushar.Manudhane@motilaloswal.com); +91 22 5036 2498
Hitakshi Chandrani
(Hitakshi.Chandrani@MotilalOswal.com) /
Bharat Hegde
(Bharat.Hegde@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.