You are on page 1of 11

2QCY2012 Result Update | Pharmaceutical

August 10, 2012

GlaxoSmithKline Pharma
Performance Highlights
Y/E Dec. (` cr) 1QCY2012 4QCY2011 % chg (qoq) 652 39 381 203 170 623 80 361 196 187 4.7 (51.6) 5.7 3.6 (9.1) 1QCY2011 % chg (yoy) 562 42 354 186 152 16.1 (7.6) 7.6 9.2 11.3

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 17,563 0.5 2475/1830 4,361 10 17,173 5,222 GLAX.BO GLXO@IN

`2,134 -

Net Sales Other income Gross profit Operating profit Adj. PAT

Source: Company, Angel Research

GlaxoSmithKline Pharma (Glaxo) reported its 2QCY2012 results, just in line with estimates, both on the top-line and bottom-line fronts. The OPM also came in line with expectations at around 31.1%. Overall, the company posted net sales and adjusted net profits of `652cr and `170cr.We continue to maintain our Neutral view on the stock. Results just in line with expectations: For 2QCY2012, Glaxo reported a 16.1% yoy growth in its net sales to `652cr, just in line with estimates. The companys gross margin came in at 58.5%, just a bit lower than our expectation of 59.0%. This aided the OPM of 31.1%, ie is line with our estimate of 31.0%, for 2QCY2012. During the quarter, Glaxo reported a growth of 11.3% yoy in its adjusted net profit to `170cr, which is below our expectation of `164cr. Outlook and valuation: We expect Glaxos net sales to post a 12.2% CAGR to `2,993cr and EPS to register an 8.7% CAGR to `82.4 over CY201113E. At current levels, the stock is trading at 28.1x and 25.9x CY2012E and CY2013E earnings respectively. We remain our Neutral view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.7 15.6 17.3 16.4

Abs. (%) Sensex Glaxo

3m 4.9 8.5

1yr (3.3)

3yr 75.7

(3.2) 111.8

Key financials (Consolidated)


Y /E Dec. (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

CY2010 2,151 12.8 581 14.3 68.6 35.3 30.7 31.1 40.6 9.3 7.5 21.2

CY2011 2,378 10.6 591 1.7 69.8 31.2 30.2 30.4 38.2 9.3 6.7 21.6

CY2012E 2,651 11.4 644 9.0 76.0 31.7 27.7 30.8 40.5 8.1 5.9 18.7

CY2013E 2,993 12.9 698 8.4 82.4 31.2 25.5 29.0 38.9 7.0 5.1 16.4

Sarabjit Kour Nangra


+91 22 39357800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Glaxo | 2QCY2012 Result Update

Exhibit 1: 2QCY2012 Standalone performance


Y/E Dec. (` cr) Net Sales Other income Total Income Gross profit Gross margin Operating profit Operating margin (%) Interest Depreciation & amortisation PBT & Exceptional Items Less : Exceptional Items Profit before tax Provision for taxation Reported PAT Net profit after exceptional items EPS (`)
Source: Company, Angel Research

2QCY2012

1QCY2012

% chg (qoq)

2QCY2011

% chg (yoy) 1HCY2012 1HCY2011

% chg

652 39 691 381 58.5 203 31.1 0 4 237 0 237 74 164 170 20.0

623 80 703 361 57.9 196 31.4 0 4 179 0 179 56 123 187 22.0

4.7 (51.6) (1.8) 5.7 3.6 4.4 32.6 32.6 31.5 33.1 (9.1)

562 42 604 354 63.1 186 33.1 0 5 223 (4) 219 71 148 152 18.0

16.1 (7.6) 14.4 7.6 9.2 (12.8) 6.5 8.5 4.7 11.3

1,275 128 1,403 742 58.2 398 31.2 0 8 518 (102) 416 130 286 357 42.1

1,164 100 1,265 730 62.7 398 34.2 0 489 (307)

9.5 28.2 11.0

0.1 6.0

9 (10.0)

182 128.7 34 281.3 148 49.6 93.5 421 (15.2)

Exhibit 2: 2QCY2012 Actual vs. Angel estimates


(` cr) Net sales Other income Operating profit Tax Adj. net profit
Source: Company, Angel Research

Actual

Estimates

Variation (%)

652 39 203 74 170

652 42 197 73 163

0.0 (7.6) 2.9 1.8 4.4

Revenue grew by 16.1%, just in line with estimates


For 2QCY2012, Glaxo reported a 16.1% yoy growth in its net sales to `652cr, just in line with our estimate. The weak top-line growth came on the back of a 16% yoy growth in the core pharmaceuticals business.

August 10, 2012

Glaxo | 2QCY2012 Result Update

Exhibit 3: Sales trend


700 652 623 623 652 35.0 30.0 25.0 20.0 15.0 500 10.0 5.0 0.0 400 2QCY2011 3QCY2011 4QCY2011 1QCY2012 2QCY2012 Sales
Source: Company, Angel Research

(`cr)

600

562

(5.0) Growth (YoY)

OPM comes at 31.1%


The companys gross margin came in at 58.5%, just a bit lower than our expectation of 59.0%. This aided the OPM of 31.1%, just in line with our estimate of 31.0%, for 2QCY2012.

Exhibit 4: OPM trend


40.0

35.0

33.2 31.4 29.0 31.1 31.1

30.0

25.0

2QCY2011

3QCY2011

4QCY2011

1QCY2012

Source: Company, Angel Research

Net profit below estimates


During the quarter, Glaxo reported a growth of 11.3% yoy in its adjusted net profit to `170cr, below our expectation of `164cr. This was mainly on the back of higher than expected deprecation during the quarter.

August 10, 2012

2QCY2012

Glaxo | 2QCY2012 Result Update

Exhibit 5: Adjusted net profit trend


250 200 152 150 146 147 187

170

(` cr)

100 50 0 2QCY2011 3QCY2011 4QCY2011 1QCY2012 2QCY2012

Source: Company, Angel Research

August 10, 2012

Glaxo | 2QCY2012 Result Update

Recommendation rationale
Renewed focus on the Indian market: Glaxo is among the top five players in the Indian market, having a market share of ~5%. Post the Intellectual Property Rights (IPR) regime, the company has renewed its focus on the domestic market with the launch of five patented products (mainly Tykerb and Rotarix) in the last two years. The new product launches since CY2007 have been a key growth driver for the company and they contributed to the 27% yoy top-line growth registered by the company in CY2011. With this the new product contribution to sales has come to around 9% in CY2011.Further, in-line with market dynamics, Glaxo has launched patented products at discounts in India compared to other markets. Thus, in CY2012, we expect the company to launch 46 branded generic products. Overall, for CY2011-13E, we expect the domestic formulation business of the company to grow at a CAGR of 12%.

Outlook and valuation:


Glaxo has a strong balance sheet with cash of ~`2,400cr (~13% of market cap), which could be used for future acquisitions or higher dividend payouts. We expect Glaxos net sales to post a 12.2% CAGR to `2,993cr and EPS to register an 8.7% CAGR to `82.7 over CY201113E. At current levels, the stock is trading at 28.1x and 25.9x CY2012E and CY2013E earnings respectively. We remain Neutral on the stock.

Exhibit 6: Key assumptions


CY2012E Sales growth (%) Growth in employee expenses (%) Operating margin (%) Capex (` cr)
Source: Company, Angel Research

CY2013E 12.9 15.0 31.2 21.0

11.4 15.0 31.7 17.0

Exhibit 7: One-year forward PE


3,000 2,500 2,000 1,500 15x 1,000 500 30x 25x 20x

Aug-07

Aug-08

Aug-09

Aug-10

May-07

May-08

May-09

May-10

May-11

Aug-11

Source: Company, Angel Research

August 10, 2012

May-12

Feb-08

Feb-09

Feb-10

Feb-11

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Feb-12

Glaxo | 2QCY2012 Result Update

Exhibit 8: Recommendation summary


Company Alembic Pharma. Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy* Sun Pharma Reco Buy Buy Neutral Accumulate Accumulate Accumulate Neutral Buy Buy Accumulate Buy Neutral Neutral CMP Tgt. price Upside (`) 59 103 2,207 874 350 86 2,105 56 406 581 107 483 676 (`) 91 156 953 399 1,859 92 92 475 647 178 % PE (x) EV/Sales (x) 55.4 51.2 9.0 14.0 12.9 6.5 63.3 17.1 11.3 65.8 6.5 8.2 21.1 19.0 17.5 17.7 7.6 25.5 6.4 11.1 18.6 4.8 16.2 23.9 0.7 0.9 2.7 2.6 2.8 2.6 1.0 5.1 0.9 1.6 2.6 0.8 1.8 4.5 FY2014E EV/EBITDA (x) 4.3 6.4 17.7 13.5 12.6 12.3 5.6 16.4 5.0 7.8 13.2 4.7 11.2 10.9 FY11-14E 14.6 61.1 12.0 20.5 18.4 2.3 26.6 8.7 32.8 29.5 26.7 27.8 44.8 0.1 29.4 10.4 16.1 20.2 16.8 15.1 8.9 38.9 15.5 26.1 22.9 11.5 15.8 26.7 FY2014E 29.9 16.4 17.0 26.8 16.6 20.8 10.0 29.0 17.0 26.0 24.7 7.9 28.9 18.8 CAGR in EPS (%) RoCE (%) RoE (%)

Accumulate 1,646

Source: Company, Angel Research; Note: * December year ending;

Background GlaxoSmithKline Pharmaceuticals is the third largest pharmaceutical player in the Indian market with a market share of 5%. The companys product portfolio includes both prescription medicines and vaccines. Glaxo sells prescription medicines across therapeutic areas such as anti-infectives, dermatology, gynaecology, diabetes, oncology, cardiovascular disease and respiratory diseases. A large portion of the companys revenue comes from the acute therapeutic portfolio. However, the company is now scouting for opportunities in high-growth therapeutic areas such as CVS, CNS, diabetes and oncology. Further, with a strong parentage, Glaxo plans to increase its product portfolio through patented launches and vaccines.

August 10, 2012

Glaxo | 2QCY2012 Result Update

Profit & loss statement


Y/E Dec Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& amortisation EBIT % chg (% of Net Sales) Interest & other charges Other income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items Exceptional items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (Rs) Fully diluted EPS (Rs) % chg 701 10.8 (128) 829 238 28.7 591 591 365 7.4 21.6 43 43 (33.9) 761 8.6 (7) 769 261 33.9 508 508 503 37.8 26.4 59 59 37.8 872 14.5 18 854 293 34.4 561 561 581 15.4 27.0 69 69 15.4 905 3.9 301 605 176 29.1 429 429 591 1.7 24.8 70 70 1.7 644 644 9.0 24.3 76 76 9.0 698 698 8.4 23.3 82 82 8.4 950 4.9 950 306 32.2 644 1,042 9.6 1,042 344 33.0 698 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E 1,787 94 1,693 3 1,696 5.2 1,098 656 97 173 173 595 15.5 35.2 16 579 17.0 34.2 1 120 1,950 43 1,908 3 1,910 12.6 1,234 702 109 209 213 674 13.2 35.3 16 658 13.6 34.5 0 101 2,195 44 2,151 5 2,156 12.9 1,392 788 126 241 237 759 12.5 35.3 18 741 12.7 34.4 1 126 2,433 55 2,378 1 2,379 10.3 1,635 919 122 279 314 743 (2.0) 31.2 20 723 (2.5) 30.4 0 182 2,703 52 2,651 5 2,655 11.6 1,811 1,066 94 321 330 840 13.0 31.7 17 823 13.9 31.0 122 3,054 61 2,993 5 2,998 12.9 2,061 1,212 105 370 374 932 11.0 31.2 18 915 11.1 30.6 122

August 10, 2012

Glaxo | 2QCY2012 Result Update

Balance Sheet
Y/E Dec SOURCES OF FUNDS Equity share capital Preference Capital Reserves& surplus Shareholders funds Minority Interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital work-inprogress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Mis. Exp. not written off Total Assets 6 (30) 1,551 5 (45) 1,747 5 (57) 1,900 5 (62) 1,879 5 (62) 2,184 5 (62) 2,514 85 1,491 1,575 85 1,701 1,786 85 1,867 1,952 85 1,851 1,936 85 2,156 2,241 85 2,486 2,571 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

326 236 90 10

333 241 93 21

363 254 109 9

316 217 99 25

337 233 103 21

358 251 106 21

730 1,452 957 204 291 730 721 1,551

148 2,183 1,734 138 311 699 1,484 1,747

118 2,510 2,003 174 333 845 1,665 1,900

112 2,761 2,043 300 419 1,119 1,642 1,879

112 3,193 2,398 265 530 1,246 1,947 2,184

112 3,681 2,783 299 599 1,407 2,275 2,514

August 10, 2012

Glaxo | 2QCY2012 Result Update

Cash flow statement


Y/E Dec Profit before tax and exceptionals Depreciation (Inc)/Dec in working capital Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in fixed assets (Inc.)/Dec. in investments Cash Flow from Investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in cash Opening cash balances Closing cash balances CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E 829 16 7 246 606 (20) (617) (637) 0 (355) 1,187 832 802 155 957 769 16 15 185 614 (18) (581) (599) 0 (394) 1,156 762 777 957 1,734 854 18 88 314 646 (17) (31) (47) 0.26 (296) (34) (330) 269 1,734 2,003 605 20 63 188 499 30 (6) 24 (0) (444) (39) (484) 40 2,003 2,043 950 17 50 306 710 (17) (17) (339) (339) 355 2,043 2,398 1,042 18 58 344 774 (21) (21) (367) (367) 386 2,398 2,783

August 10, 2012

Glaxo | 2QCY2012 Result Update

Key ratio
Y/E Dec Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE (Pre-tax) Angel ROIC (Pretax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 39.7 24.7 39.9 29.9 40.6 31.1 38.2 30.4 40.5 30.8 38.9 29.0 43.1 43.1 71.7 40.0 186.0 59.4 59.4 61.9 30.0 210.9 68.6 68.6 68.3 40.0 230.4 69.8 69.8 53.0 45.0 228.5 76.0 76.0 78.0 30.4 264.5 82.4 82.4 84.5 33.0 303.5 48.8 29.4 11.3 1.9 10.0 28.4 10.9 35.4 34.0 10.0 1.4 8.4 23.9 9.2 30.7 30.8 9.1 1.9 7.4 20.9 8.3 30.2 39.7 9.2 2.1 6.6 21.2 8.4 27.7 27.0 8.0 1.4 5.8 18.4 7.1 25.5 24.9 6.9 1.6 5.0 16.1 6.0 CY2008 CY2009 CY2010 CY2011E CY2012E CY2013E

5.3 48 10 80 98

5.8 47 11 81 90

6.2 46 9 82 81

7.0 46 11 72 94

8.1 45 14 70 104

8.6 54 17 82 103

(0.6) (1.6) -

(1.0) (2.6) -

(1.0) (2.6) -

(1.1) (2.7) -

(1.1) (2.8) -

(1.1) (3.0) -

August 10, 2012

10

Glaxo | 2QCY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Glaxo Pharma No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 10, 2012

11