Feb 21, 2013, 11.24 AM | Source: Moneycontrol.com
Motilal Oswal has maintained a neutral rating on GlaxoSmithKline Consumer Healthcare with a target price of Rs 4000, in its February 18, 2013 research report.
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GSK Consumer's 4QCY12 performance was mixed, with sales 6% ahead of estimates but EBITDA and PAT were 38% and 13% below expectations due to sharp 400bp increase in other expenses. Sales grew 17.8% to INR7.09b (est INR6.7b), led by estimated 8-9% volume growth in MFD.
Gross margin expanded 160bp YoY to 66% due to price hikes, correction in SMP prices and mix improvement.
EBITDA margin however declined 300bp YoY to 7.2% (est 12.2%) due to sharp increase in other expenses (up 37% YoY, impacting by 410bp) and employee costs (up 80bp). EBITDA declined by 17% YoY to INR510m (est INR819m).
Higher other income (up 24%) and lower depreciation costs (down 35%) resulted in 6% PBT growth to INR1.03b (est INR1.22b). Decline in depreciation expenses is due to fully depreciated Sonepat plant. We expect these costs to revert to normal trends beginning 1QCY13 as new plant commences operations in CY13. PAT growth of 18%, ahead of PBT growth, was on account of 660bp YoY contraction in tax rate to 32.3%.
CY12 highlights - Sales, EBITDA and PAT growth stood at 15%, 10% and 23% respectively YoY. GSK announced a dividend of INR45/share for CY12.
Despite the EBITDA miss, we remain positive on core MFD portfolio given the favorable long term drivers of low penetration and per capita consumption, company's strong brand equity, leadership position and distribution reach. GSK's focused efforts to diversify geographical revenue mix coupled with distribution expansion can aid volume growth in the medium term.
However, GSK outperformed the FMCG index by 21% in the last three months, post announcement of the open offer. At 30.9x and 26.5x CY13E and CY14E EPS respectively, we believe valuations are expensive and discount the positives adequately. We see limited near term triggers for the stock. Downgrade to Neutral with a TP of INR4,000 (28x CY14E P/E), an upside of 7%," says Motilal Oswal research eport.
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