Hold GSK Consumer; target of Rs 2720: KRChoksey

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Hold GSK Consumer; target of Rs 2720: KRChoksey

KRChoksey has recommended hold rating on GlaxoSmithKline Consumer Healthcare with a target of Rs 2720, in its November 8, 2011 research report.

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KRChoksey has recommended hold rating on GlaxoSmithKline Consumer Healthcare with a target of Rs 2720, in its November 8, 2011 research report.

"GSK Consumer Healthcare Ltd (GSKCHL) reported strong topline growth of 18% y-o-y, inline with our estimates on the back of 10% volume growth & 8% realization growth. The quarter was sales were benefited by 5% price hike taken in Nov'10 & 2.5% in July'11. MFD category registered a volume growth of 8%. Horlicks recorded healthy volume growth of 10% whereas Boost clocked subdued volumes growth of 5%. In the Non-HFD segment Biscuits reported a growth of 20% whereas Foodles sales were flat on account of supply issues."

"Net sales were up 18% y-o-y, inline with our estimates, on account of 10% volume growth & 8% realization growth. MFD volume growth was ~8%.Horlicks & Boost reported volume growth of 10% & 5% respectively. Gross margins decline on account of high raw material prices. However EBITDA margins expanded on account of lower staff cost, Ad-spends & other expenses as a % to sales. Consequently EBITDA grew at a higher rate of 24% y-o-y to Rs 118 crores. Net profit grew by 31% y-o-y to Rs 103 crores, was above our estimates, on account of higher other income (higher interest income & higher business auxiliary income) & lower effective tax rate. GSKCHL's EBITDA grew at a higher rate of 24% y-o-y to Rs 118 crores. Gross margins declined by 70 bps y-o-y on account of increase in Barley (+18%) & milk prices (+20%), partially offset by 19% y-o-y decline in sugar prices. However effective cost management i.e decline in staff cost, other expenditure & Ad-spends as a % to sales resulted in EBITDA margin expanding by 87 bps y-o-y."

"We expect GSKCHL's earnings to grow at healthy CAGR of 21% over CY10-12E on the back of its leadership position in the MFD segment, innovations, higher penetration in rural markets & strong performance of niche products. We have revised our estimates & value the stock at 26x CY12E EPS of Rs 104.6, recommending HOLD with a target price of Rs 2,720 giving an upside of 6% from the current levels," says KRChoksey research report.

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To read the full report click on the attachment