Reduce GSK Pharma: Dolat Capital

Dolat Capital is bearish on GlaxoSmithKline Pharmaceuticals and has recommended reduce rating on the stock with a target of Rs 2150 in its August 14, 2012 research report.

“GSK Pharma, topline grew 15.3% YoY to 6.62bn. During the quarter pharma segment's revenue grew 16.3% YoY. Of the balance revenue, 2/3rds came from Iodex with the rest from Beta exports. Growth was driven by strong performance across all verticals. In particular, Dermatology segment grew 24% YoY and Vaccines grew by 25% YoY. Growth in mass market and mass specialty was 14%. Synflorix vaccine has grabbed 48% volume share against Prevnar.”

“Operating margins, excluding other income, stood at 32.1% (lower by 260bps YoY) mainly on account of higher raw material costs (up 530bps YoY). However, further contraction was restricted by lower employee costs and other expenses which declined by 160bps and 80bps YoY, respectively. Other income rose 27.5% YoY to ` 380mn while depreciation declined 12.8% YoY to ` 43mn. The implementation of the new pharma pricing policy has been deferred for the time being. Our estimates do not take into account the impact of the proposed price control. We expect specialty & vaccines portfolio to drive revenue growth in the interim.”

“Sustained growth in priority products and vaccines, with gradual scale up in revenues from new product launches, will result in 12% revenue growth over CY11-13E. The implementation of the new pharma pricing policy has been deferred for the time being and our estimates do not consider the impact of the proposed price control. At CMP, the stock trades at 25.5x CY12E and 22.5x CY13E earnings. We recommend ‘Reduce’ with a revised target price of ` 2,150 (23x CY13E earnings),” says Dolat Capital research report.

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