Buy Glaxosmithkline Consumer Healthcare; target of Rs 5950: Axis Direct

Axis Direct's research report on Glaxosmithkline Consumer Healthcare

Net sales, EBITDA and Adj PAT grew 2%, 2% and 8% (vs. consensus expectation of 2%, -4% and -4%). Domestic sales grew 2% aided by 2.7% price hike. OPM contracted 10 bps YoY (at 20.8%), as impact of lower employee costs (-403 bps YoY) was absorbed by higher raw material costs (+229 bps YoY) and A&P spend (+146 bps YoY).

Outlook

After maintaining a neutral to negative stance for four years, we upgrade GSKCH to BUY with TP of Rs 5,950 (earlier Rs 5,300) based on fwd. P/E of 29x.Strong pricing power, category leadership and attractive valuation (26x P/E for FY19E) is a reality and improvement in the core category volume growth a strong possibility given multiple initiatives taken by the management.