21 February 2012
4QCY12 Results Update | Sector: Healthcare
GlaxoSmithKline Pharmaceuticals
BSE SENSEX
S&P CNX
18,429
5,607
CMP: INR2,088
TP: INR2,272
Buy
Bloomberg
GLXO IN
Equity Shares (m)
84.7
52-Week Range (INR) 2,475/1,830
1,6,12 Rel. Perf. (%)
-4/-11/-5
M.Cap. (INR b)
176.9
M.Cap. (USD b)
3.6
GlaxoSmithKline Pharmaceuticals (GLXO) posted net sales of INR5.66b (v/s our estimate of INR5.43b) for
4QCY12, up 15.4% YoY. EBITDA grew 15.8% YoY to INR1.71b (v/s our estimate of INR1.62b) while adjusted PAT
increased 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b).
While overall revenue growth was 15.4% YoY, revenue from the core pharmaceuticals business grew by an
impressive 18.2% YoY. Topline growth was led by revival in the Mass Market business and Anti-infectives
segments. Vaccines and Specialty segments including Oncology, Dermatology, Cardiovascular and Metabolics
reported robust double-digit growth, driven by new product launches.
EBITDA grew 15.8% YoY to INR1.71b; EBITDA margin remained flat YoY at 30.1% (v/s our estimate of 29.8%).
EBITDA was higher than estimated, primarily led by better than estimated topline growth.
Adjusted PAT increased by 20.5% YoY to INR1.47b (v/s our estimate of INR1.3b), led by higher than estimated
other income and lower effective tax rate. GLXO has declared INR45/share as dividend.
We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products
in the high-growth lifestyle segments. These launches should bring in long-term benefits. While we expect
double-digit topline growth to sustain over the next few years, the growth trajectory should improve further
post CY13, as new launches start contributing meaningfully. This growth is likely to be funded through miniscule
capex and negative net working capital. GLXO deserves premium valuations due to strong parentage (giving
access to large product pipeline), brand-building ability and likely positioning in the post-patent era. It is one of
the very few companies, with the ability to achieve reasonable growth without any major capital requirement,
leading to high RoCE of over 45%. We expect GLXO to record an EPS of INR87.4 (up 17.2%) in CY12. The stock
currently trades at 23.9x CY12E EPS. Maintain
Buy,
with a target price of INR2,272 (26x CY12E EPS).
Nimish Desai
(NimishDesai@MotilalOswal.com); Tel: +91 22 39825406
Amit Shah
(Amit.Shah@MotilalOswal.com); Tel: + 91 22 3982 5423

GlaxoSmithKline Pharmaceuticals
Topline growth driven by revival in Mass Market and Anti-infectives
segment
Net sales grew by 15.4% YoY to INR5.66b (v/s est of INR5.43b), EBITDA grew by 15.8%
YoY to INR1.71b (v/s est of INR1.62b) while Adj PAT increased by 20.5% YoY to INR1.47b
(v/s est INR1.3b).
While the overall revenue growth was at 15.4% YoY, revenue from core pharmaceutical
business grew by impressive 18.2% YoY. Topline growth was led by revival in the Mass
Market business and Anti-infectives segments. Vaccines and Specialty segment
including Oncology, Dermatology, Cardiovascular and Metabolics reported robust
double digit growth on the back of new product launches.
Revenue trend
18.4
13.7
8.9
10.4
11.4
Net Sal es (INR m)
Growth (%)
15.4
12.8
4.4
1Q
2Q
CY10
3Q
4Q
1Q
2Q
CY11
3Q
4Q
Source: Company/MOSL
EBITDA increased by 15.8%, above estimates
EBITDA increased by 15.8% YoY to INR1.71b while EBITDA margin remained flat YoY at
30.1% (v/s est 29.8%). EBITDA was above estimates primarily led by better than
estimated topline growth. Adj PAT increased by 20.5% YoY to INR1.47b (v/s est INR1.3b)
led by higher than estimated other income and lower effective tax rate. The company
has declared INR45/share as dividend.
EBITDA and margin trend
EBITDA (INR m)
37.0
36.5
35.9
30.0
35.0
Ma rgi n (%)
33.3
29.0
30.1
1Q
2Q
CY10
3Q
4Q
1Q
2Q
CY11
3Q
4Q
Source: Company/MOSL
Topline to grow in double digits; EBITDA margins to sustain at 33-35%
We expect GSK to sustain double-digit topline growth over the next two years led by
focus on Priority Products, expanding therapeutic and geographic coverage, and
21 February 2012
2

GlaxoSmithKline Pharmaceuticals
incremental contribution from new launches. We believe the company will be able
to sustain EBITDA margin at ~35% despite the gradual increase in field force strength
(200-300 per year). Planned investments in field force expansion for the year continued
during the quarter. GSK’s strong brand-equity with doctors enables it to sustain
premium pricing for many of its brands resulting in high profitability. The main products
launched in the last few quarters include Synflorix (vaccine against invasive
pneumococcal disease), Mycamine (injectable anti-fungal, in-licensed from Astellas),
Parit-D (in the GI segment – in-licensed from Esai), Modvate 3 & Modvate AF creams
(both in the dermatology segments), branded generics for Atorvastatin and
Rosuvastatin (both in the CVS segment), Revolcade and Votirent from GSK’s pipeline
in Oncology and Haematology, one in dermatology and one in branded generic
segment.
Aggressive new launches
GSK is strongly committed to Indian operations, which is evident from the fact that
many new products have been launched in CY08-10 period. This includes four vaccines
including the latest Cervarix (cervical cancer vaccine for women) and Tykerb (anti-
cancer). We believe that Cervarix, Rotarix (Rotavirus vaccine) and Eltrombopag
(platelet aggregator) hold good long-term potential. It has attained the leadership
position in the cervical cancer vaccine market despite launching Cervarix post Merck’s
launch of Gardsil. GSK has recently dropped prices of this vaccine (not quantified). In
line with its strategy, GSK is gradually ramping up its presence in the high-growth
lifestyle segments through a combination of launching product’s from the parent’s
pipeline, in-licensing from other MNCs and launch of branded generics. Despite having
a negligible contribution from the life-style segments, GSK currently enjoys one of
the highest profitability in the industry (EBITDA margins of 35%).
Draft New Pharma Pricing Policy, if implemented in its current form, likely
to impact earnings
The government has released the draft of the National Pharmaceuticals Pricing Policy,
2011 (NPPP). The proposed policy significantly increased the span of price control. All
the 348 drugs, which are currently a part of the National List of Essential Medicines
(NLEM) will be subjected to price control. Currently, only 74 drugs are under price
control. Price control will be implemented on formulations of these drugs as compared
to the current practice of controlling bulk drug price. Further, price control will also
apply to combination drugs and to all the dosage strengths of the drugs.
If the policy is implemented in its current form, as per AIOCD analysis, GLXO’s sales
will impacted by INR1.51b (6% of revenue). This translates into 13.5% impact on
earnings.
Upgrading earnings estimates by 3%
Based on 4QCY11 result and guidance given by the management, we have increased
revenue estimates for CY12 by 1%. Consequently, we have increased earnings
estimates for CY12 by 2.8%. Our estimates do not take into account the impact of
NPPP.
21 February 2012
3

GlaxoSmithKline Pharmaceuticals
Valuation and view
We believe GSK is one of the best plays on IPR regime in India with aggressive plans
to launch new products in the high-growth life-style segments. These launches are
expected to bring in long-term benefits. We believe GSK is likely to sustain double-
digit topline growth over the next few years. We believe that this growth trajectory
will improve further post CY13, as new launches start contributing meaningfully to
topline. Given the high profitability of operations, we expect this growth to lead to
sustainable double-digit earnings growth and RoE of ~30%. This growth is likely to be
funded through miniscule capex and negative net working capital.
GSK deserves premium valuations due to strong parentage (giving access to large
product pipeline), brand-building ability and likely positioning in post patent era. It is
one of the very few companies with ability to drive reasonable growth without any
major capital requirement leading to high RoCE of over 45%. Based on our revised
estimates, we expect GSK to record CY12E EPS of INR87.4 (up 17.2%). The stock is
currently valued at 23.9x CY12E. Maintain
Buy
with a target price of INR2,272 (26x
CY12E).
21 February 2012
4

GlaxoSmithKline Pharmaceuticals
GlaxoSmithKline Pharmaceuticals: an investment profile
Company description
GSK Pharma (50% subsidiary of GSK Plc) is the 4
rd
largest
formulations company and second largest pharma MNC
in India , with a strong presence in segments like
dermatology, respiratory and vaccines. Its parent has one
of the richest product and R&D pipelines among Pharma
companies worldwide.
Possible pre-grant and post-grant patent challenges
by domestic generic companies could hamper the
plans and prospects of launch of patented product
by GSK Pharma in India.
Recent developments
Key investment arguments
Excellent branded portfolio with strong presence in
dermatology, respiratory and vaccines; increased
focus on high margin-high growth “power brands”
has improved product mix.
Parent’s strong pipeline holds good upside potential
post IPR implementation, with no conflict issues
involved with any other subsidiary.
GSK is strongly committed to its Indian operations,
which is evident from the fact that 9 patented (or
low-competition) products have launched in the
CY08-10 period.
Launch of Votrient, indicated for the treatment of
advanced renal cell carcinoma and Revolade for the
treatment of reduced platelet count.
Valuation and view
We believe GSK is one of the best plays on IPR regime
in India. Parent is fully committed to the listed
entity, which is evident from the fact that it is
proposing to launch most of the patented products
through the listed entity
The stock is currently valued at 23.9x CY12E earnings.
We maintain
Buy.
Sector view
The domestic market is expected to witness 12-13%
growth, with gradual increase in the low penetration
levels – companies with strong brands and marketing
muscle to benefit. IPR regime unlikely to lead to
any major change in the near term; MNCs and large
Indian players to gain over the longer term.
Among MNCs, we are bullish on companies whose
domestic portfolio is well aligned with its parent
and where risk of conflict with 100% subsidiaries is
limited.
Key investment risks
Biggest risk to GSK Pharma could be the
implementation of the new pharmaceutical policy
in the current form. The new policy proposes to
significantly increase the span of control by bringing
in additional 354 drugs under price control. This could
severely impact the profitability of GSK Pharma’s
business.
GSK Pharma
28.0
23.9
9.2
8.5
6.6
5.8
20.9
17.0
Aventis
28.4
26.1
4.7
4.2
4.1
3.2
29.9
21.7
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
CY11A
CY12E
CY11A
CY12E
CY11A
CY12E
CY11A
CY12E
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
CY11
CY12
74.5
87.4
Consensus
Forecast
71.0
84.4
Variation
(%)
4.9
3.6
Target Price and Recommendation
Current
Price (INR)
2,088
Target
Price (INR)
2,272
Upside
(%)
8.8
Reco.
Buy
Stock performance (1 year)
GSK Pha rma
2,500
Sens ex - Reba s ed
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
21 February 2012
Dec-11
50.7
15.6
17.3
16.4
Sep-11
50.7
15.5
17.4
16.5
Dec-10
50.7
16.2
16.3
16.9
2,250
2,000
1,750
1,500
Feb-11
Ma y-11
Aug-11
Nov-11
Feb-12
5

GlaxoSmithKline Pharmaceuticals
Financials and Valuations
21 February 2012
6

GlaxoSmithKline Pharmaceuticals
N O T E S
21 February 2012
7

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GlaxoSmithKline Pharmaceuticals
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