Buy GSK Pharma; target of Rs 2328: Motilal Oswal

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Buy GSK Pharma; target of Rs 2328: Motilal Oswal

Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals and has recommended buy rating on the stock with a target of Rs 2328 in its August 10, 2011 research report.

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Motilal Oswal is bullish on GlaxoSmithKline Pharmaceuticals and has recommended buy rating on the stock with a target of Rs 2328 in its August 10, 2011 research report.

"GlaxoSmithKline Pharmaceuticals, net sales grew 12.8% YoY to INR5.62b (against our estimate of INR5.62b), EBITDA grew 3% YoY to INR1.87b (against our estimate of INR2b) and adjusted PAT grew 8.6% YoY to INR1.52b (against our estimate of INR1.57b). Net sales growth was led by domestic pharmaceutical revenue, which grew 13.8% and overall sales (including exports) which grew 12.8%. The management indicated that oncology, dermatology, mass specialty therapies and vaccines were key growth drivers in 2QCY11. GLXO launched new products including innovative and branded generic and in-licensed products. EBITDA margin fell 320bp YoY to 33.3% (against our estimate of 35.8%). EBITDA was below estimates mainly due to higher other expenditure and employee costs. Adjusted PAT was in line with estimates despite lower EBITDA due to higher other income of INR421m (against our estimate of INR384m) and a lower effective tax rate."

"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 are expected to bring it long-term benefits. We believe GLXO is likely to sustain double-digit top-line growth over the next few years. We believe this growth trajectory will improve after CY13, as new launches start contributing meaningfully to the top-line. Given the high profitability of operations, we expect the 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."

"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 few companies with the ability to drive reasonable growth without major capital requirement, leading to high RoCE of over 45%. Based on our estimates, we expect GLXO to record CY11 EPS of INR77.5 (up 12.9%) and CY12 EPS of INR89.6 (up 15.5%). The stock is valued at 27.4x CY11E and 23.7x CY12E earnings. Maintain Buy with a target price of INR 2328 (26x CY11E)," says Motilal Oswal research report.

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To read the full report click on the attachment