Buy GlaxoSmithKline Pharma; target Rs 2544: Motilal Oswal

Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals (GLXO) and has recommended buy rating on the stock with a target price of Rs 2,544 in its research report dated February 21, 2013.
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Feb 22, 2013, 01.36 PM | Source: Moneycontrol.com

Buy GlaxoSmithKline Pharma; target Rs 2544: Motilal Oswal

Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals (GLXO) and has recommended buy rating on the stock with a target price of Rs 2,544 in its research report dated February 21, 2013.

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Buy GlaxoSmithKline Pharma; target Rs 2544: Motilal Oswal

Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals (GLXO) and has recommended buy rating on the stock with a target price of Rs 2,544 in its research report dated February 21, 2013.

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Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals (GLXO) and has recommended buy rating on the stock with a target price of Rs 2,544 in its research report dated February 21, 2013.

"GlaxoSmithKline Pharmaceuticals (GLXO) posted better than expected results for 4QCY12. Topline grew 16% YoY to INR6.57b (v/s our estimate of INR6.22b), EBITDA grew 12% YoY to INR1.91b (v/s our estimate of INR1.71b) and adjusted PAT grew 7.4% YoY to INR1.58b (v/s our estimate of INR1.46b). EBITDA margin declined 100bp YoY to 29.1% (our estimate was 27.5%). Healthy topline growth and lower other expenses led to higher than expected EBITDA. Adjusted PAT growth was lower than EBITDA growth due to 11% YoY decline in other income. Reported PAT was lower than adjusted PAT due to INR198m net-of-tax extraordinary expenses pertaining to (1) restructuring initiatives at Thane facility, and (2) actuarial loss on employee benefits plan.

We maintain our earnings estimates for CY13 and CY14. GLXO is likely to sustain double-digit topline growth over the next few years. We believe this growth trajectory will improve further post CY13/14, as new launches begin to contribute meaningfully. We expect sustained doubledigit earnings growth and RoE of ~30%, given high profitability of operations, low capex and negative net working capital. GLXO deserves premium valuations due to its strong parentage (giving access to large product pipeline), brandbuilding ability and likely positioning in the post patent era. We expect GLXO to record EPS of INR91.5 (up 14.4%) for CY13 and INR101.7 (up 11.2%) for CY14. Our estimates exclude potential adverse impact of the proposed New Pharma Pricing Policy (NPPP) pending implementation.

However, we believe that the policy will adversely impact MNCs like GLXO and expect a downgrade in our estimates post the implementation of the policy. However, from a medium-to-long term perspective, any decline in stock price due to the NPPP should be utilized as a buying opportunity. We believe that the correction in valuations over the last two years partly factors in these concerns but not the changing management strategy to drive growth and GLXO's ranking in the Indian healthcare market. The stock is valued at 23.2x CY13E and 20.9x CY14E EPS. Buy with a TP of INR2,544," says Motilal Oswal research eport.

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Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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