25 July 2017
1QFY18 Results Update | Sector: Healthcare
GSK Pharma
Neutral
BSE SENSEX
32,228
S&P CNX
9,965
CMP: INR2,510 TP: INR2,500 (0%)
GST impacts revenues, margins tank
Motilal Oswal values your support in the
Asiamoney Brokers Poll 2017 for India
Research, Sales and Trading team. We
request your ballot.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
GLXO IN
85
212.6 / 3.3
3430 / 2309
-2/-24/-41
38
25.0
Financials & Valuations (INR b)
Y/E Mar
2017 2018E
Net Sales
29.3
31.6
EBITDA
3.5
4.5
PAT
2.9
4.0
EPS (INR)
34.4
46.8
Gr. (%)
-22.2
36.2
BV/Sh (INR)
236.9
203.2
RoE (%)
14.5
23.0
RoCE (%)
15.7
21.3
P/E (x)
73.0
53.6
P/BV (x)
10.6
12.4
2019E
35.4
5.6
4.7
54.9
17.3
177.6
30.9
28.8
45.7
14.1
Estimate change
TP change
Rating change
GSK Pharma’s (GLXO) 1QFY18 sales declined 14.4% YoY to INR5.9b (24%
miss). It recorded EBITDA loss of INR6m (est. of INR1.2b) due to lower
turnover, and higher other expense (includes one-time expense of INR111m
relating to arrears in payment of State Entry Tax) and employee expense.
Reported PAT declined 63% YoY to INR264m, including INR124m of one-time
income from sale of properties.
GST impact evident, recovery expected in coming months:
Inventory de-
stocking in the run up to GST roll-out impacted primary sales by INR1.3b (~2
weeks of sales). Adjusted for the GST impact, revenue grew ~6% YoY in
1QFY18. Although gross margin remained largely flat YoY and improved
marginally QoQ, GLXO made insignificant EBITDA in 1Q (INR-6m) as
operating cost below GM remained largely flat. Unlike Alembic which
reduced its promotional expense during the quarter, it looks like GLXO has
maintained its marketing expense, and thus, other expense for the company
went up during the quarter despite lower sales.
Margin improvement is key:
Apart from GST, regulatory issues continued to
have a negative impact on margins. We expect recovery in sales and margins
from 2Q, led by channel re-filing. According to AIOCD, FDC-related market
(which declined 10.9%) continued to drag companies. Secondary sales of
GLXO increased 8.6% in 1QFY18 v/s 7.5% for industry.
Valuation and view:
We believe GLXO has strong parent support, superior
brand portfolio (competitive advantage), high payout ratio (>100%) and
industry-leading return ratios (RoCE of ~30%). We maintain our
Neutral
rating with a target price of INR2,500 @ 45x FY19E PER (v/s INR2,700 @ 45x
FY19E PER). We have cut our FY18/19E EPS by ~10/9% as we do not expect
full sales recovery.
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
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.