Sell Glaxo SmithKline Pharma; target of Rs 950: Centrum

Centrum's research report on Glaxo SmithKline Pharma

We maintain Sell rating on GlaxoSmithKline Pharma (GSK) and revise our TP to Rs950 (earlier Rs1,900 cum bonus) based on 24x March’20E EPS of Rs39.6. GSK’s Q2FY18 results were better than our estimates. GSK’s revenue declined by 2%YoY, EBIDTA margin dropped 280bps to 20.2% and net profit before EO item declined by 10% YoY on a higher base in Q2FY18 after GST implementation. GSK’s major brands grew by high single digit to double digit during the quarter. That said, the company has a strong presence in the vaccines segment and derives ~20% revenues from the same. Key risks to our assumptions include faster-than-expected growth in the domestic market, re-structuring benefits and higher growth of its flagship brands. We recommend a switch to other pharma companies, Sanofi India or Pfizer, due to GSK’s rich valuations.

Outlook

GSK’s performance during the quarter declined due to higher base after re-stocking by trade. We maintain our Sell rating on the scrip, with TP to Rs950 based on 24x March’20E EPS of Rs39.6, with a downside of 31.6% from the CMP due to its rich valuations. We recommend a switch to Sanofi India or Pfizer.