Buy GSK Consumer; target of Rs 5960: ICICI Direct

ICICI Direct's research report on GSK Consumer

Amid de-stocking ahead of GST implementation and a tepid demand environment, total revenues (including auxiliary income) declined only 1.3% YoY to Rs 1045.9 crore (I-direct estimate: Rs 977.0 crore). Though revenues were impacted by disruption in CSD & wholesale channels, GSK’s initiatives like rolling out of various schemes, extended credit period and compensation for tax difference helped restricted any fall in volumes. Volumes remained flat for the quarter Cost of raw material increased significantly by 668 bps as percent of sales. Additionally, against our estimate of decline in advertisement cost, the company reported increase in its advertisement expense at 12.2% of net sales vs. 11.5% in the same quarter last year. Excise duty for the quarter was 47.6%, down YoY to Rs 60.5 crore. Thus, EBITDA for the quarter declined 18.3% YoY & EBITDA margin contracted 331 bps YoY to 15.9% (I-direct estimate: 19.1%) Due to a decline in EBITDA, profit for the quarter reported a decline of 17.7% YoY to Rs 132.2 crore (I-direct estimate: Rs 156.0 crore).

Outlook

Though we have cut our estimates, we remain positive about the company’s long term growth prospect considering - a) company’s focus on increasing penetration & geographical reach & b) aggressive investment behind brands coupled with premiumisation. We continue to maintain our BUY recommendation on the stock with revised target price of Rs 5960/share valuing it at 32x its FY19E EPS of Rs 186.2.