Sell GlaxoSmithKline Pharma; target of Rs 1850: Centrum

Centrum's research report on Glaxo SmithKline Pharma

We maintain Sell rating on GlaxoSmithKline Pharma (GSK) and revise our TP to Rs1,850 (earlier Rs1,525) based on 24x March’20E EPS of Rs77.1. GSK’s Q3FY18 results were below our and consensus estimates. GSK revenue was flat, EBIDTA margin improved 1,270bps to 20.1% and net profit grew 156% YoY. 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 is likely to derive growth from the same. Key risks to our assumptions include faster-than-expected growth in the domestic market and higher growth of its flagship brands. We recommend a switch to other pharma companies, Abbott India or Pfizer, due to GSK’s rich valuations.

Outlook

GSK’s performance during the quarter improved due to re-stocking by trade after implementation of GST. We have revised our EPS estimates for FY18 and FY19 downwards by 3% and 9%, respectively. We maintain our Sell rating on the scrip, and have revised our TP to Rs1,850 based on 24x March’20E EPS of Rs77.1, with a downside of 25% from the CMP due to its rich valuations. We recommend a switch to Abbott India or Pfizer.