Sell GSK Pharma; target Rs 1880: PINC Research

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Sell GSK Pharma; target Rs 1880: PINC Research

PINC Research is bearish on GlaxoSmithKline Pharmaceuticals (GSK Pharma) and has recommended sell rating on the stock with a target price of Rs 1880 in its February 16, 2012 research report.

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PINC Research is bearish on GlaxoSmithKline Pharmaceuticals (GSK Pharma) and has recommended sell rating on the stock with a target price of Rs 1880 in its February 16, 2012 research report.

"GSK Pharma's Q4CY11 results were largely in-line with our estimates. The net sales grew by 15.4% YoY to Rs5.6bn on back of revival in the anti-infective and mass markets. The company also witnessed strong traction in speciality and vaccine segment. The gross margins contracted by 372bps YoY due to escalation in the raw material costs. However, EBITDA margins were in-line with our estimates at 31.5%, as the lower SG&A costs offset the impact of contracted gross margins. Consequently, the net profit came in at Rs1.4bn, growth of 20.5% YoY."

"GSK Pharma reported net sales of Rs5.6bn up 15.4%YoY, in- line with our estimates, backed by the revival in the anti-infective and mass market segments. Further, the company also launched Synflorix-vaccine against invasive pneumococcal disease during the quarter. The core pharmaceutical segment clocked growth of 18.2% YoY. The gross margins contracted during the quarter due to escalation in the raw material costs. However, the impact was offset by the lower SG&A expense, translating to EBITDA margins of 31.5%, in-line with our estimates. Subsequently, the reported recurring net profit came in at Rs1.4bn, growth of 20.5% YoY."

"The proposed NPPP-2011 policy, which entails to bring more than 60% of the domestic drugs under price control on back of market based pricing, still remains unclear and would negatively impact GSK Pharma. We expect key brands such as Augmentin and Calpol to be impacted by the policy. The stock is trading at an expensive valuation of 25.3x CY12E and 22.3x CY13E earnings. We maintain our 'SELL' recommendation on the stock on back of rich valuations and the overhang of the proposed NPPP-2011. We value the company at 22x one year forward earnings with a Target Price of Rs1,880," says PINC Research report.

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To read the full report click on the attachment