Valuation

of
GlaxoSmithKline Bangladesh Limited
GLOBAL
ECONOMY
 GLOBAL ECONOMY

Global PMI(Yearly) US GDP (In Billion Dollar)

55 22500

21500
54
20500
53
19500

52 18500

51 17500

16500
50
15500
49
14500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
48
2017 2018 2019 2020 US GDP (In Billion Dollar)

Source: World Bank Source: BBS

 GLOBAL ECONOMY

USA Unemployment Rate China PMI

12 58

56
10
54

8 52

50
6
48

4 46

44
2
42

0 40
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: World Bank Source: World Bank

GLOBAL ECONOMY- ONGOING CONFLICTS

Afghanistan-USA

Iraq-USA

Iran-USA

South Sudan-Sudan

Syria-USA

Yemen-USA

Somalia-USA

Ukraine-Russia

Libya-USA

Japan and China in East China Sea

Internal war of Nigeria with Boko Haram

GLOBAL ECONOMY- ECONOMIC GROWTH

Economic Growth
Region 2016 2017 2018 2019e 2020f 2021f 2022f

World 2.6 3.2 3.0 2.4 2.5 2.6 2.7

Advanced Economies 1.7 2.4 2.2 1.6 1.4 1.5 1.5
Emerging Market and Developing Economy 4.2 4.5 4.3 3.5 4.1 4.3 4.4
East Asia and Pacific 6.4 6.5 6.3 5.8 5.7 5.6 5.6
Europe and Central Asia 1.9 4.1 3.2 2.0 2.6 2.9 2.9
Latin America and the Caribbean -0.3 1.9 1.7 0.8 1.8 2.4 2.6
Middle East and North Africa 5.3 1.1 0.8 0.1 2.4 2.7 2.8
South Asia 8.1 6.7 7.1 4.9 5.5 5.9 6.0
Sub-Saharan Africa 1.3 2.7 2.6 2.4 2.9 3.1 3.3

Source: World Bank

GLOBAL ECONOMY- ECONOMIC GROWTH (SOUTH ASIA)

Economy Growth ( South Asia)

2016 2017 2018 2019e 2020f 2021f

South Asia 6.7 7.1 4.9 5.5 5.9 6.0

Afghanistan 2.7 1.8 2.5 3.0 3.5 3.5
Bangladesh 7.3 7.9 8.1 7.2 7.3 7.3
Bhutan 6.3 3.8 3.9 5.6 7.6 6.2
India 7.2 6.8 5.0 5.8 6.1 6.1
Maldives 6.9 6.7 5.2 5.5 5.6 5.6
Nepal 8.2 6.7 7.1 6.4 6.5 6.6
Pakistan 5.2 5.5 3.3 2.4 3.0 3.9
Sri Lanka 3.4 3.2 2.7 3.3 3.7 3.7

Source: World Bank

MACRO
ECONOMY
 MACRO ECONOMY

GDP Growth Rate of Bangladesh Population of Bangladesh (In Million)

8.50% 169
8.13% 167
7.86% 167 166
8.00%
165
165
7.50% 7.28%
163
7.11%
163
7.00% 161
6.55% 161

6.50% 159
159 158
6.01% 6.06%
6.00%
157 156

5.50% 155
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2012 2013 2014 2015 2016 2017 2018 2019

Source: World Bank Source: World Bank

 MACRO ECONOMY

M1 Growth % M2 Growth %
35.00% 32.10% 18.00%
16.08% 16.35%

30.00% 16.00%
25.30%
14.00%
25.00% 12.42%
12.00% 10.88%
20.00% 9.90%
10.00%
14.60%
15.00% 13.53% 13.02%
8.00%

10.00% 7.20% 6.00%

5.00% 4.00%
2.50%

0.00% 2.00%
2014 2015 2016 2017 2018 2019
0.00%
2014 2015 2016 2017 2018 2019

Source: World Bank Source: World Bank

 MACRO ECONOMY

Per Capita Income (In US Dollars)

2000
1906
1900

1800 1751

1700
1610
1600

1500 1465

1400
1316
1300
1184
1200

1100
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Source: World Bank Source: Investing.com

INDUSTRY
BACKGROUND
(Fast Moving Consumer Goods)
 GROWTH DRIVERS – FMCG INDUSTRY

Per Capita
1 Consumption 2 Population
Growth
3 INCOME
Expenditure

Increased at a rate of 10.12% 168 Million People Per Capita Income $1960

Increased Food Consumption Population Growth 1.1% Annually 8.5% Growth in 2019
By 2036, 25% of people will be over 50
Positive Impact on FMCG Industry Years Old
Increased Consumption

Urban Dwelling Middle and Affluent

4 People
5 Class

59 Million in 2018 17 Million in 2019

3% Growth Annually 27 Million by 2030

Lifestyle Changes and Poor Segment reduce to 44 Million to 88
Environmental Factors Million
Source: Dhaka Tribune
GROWTH DRIVERS – FMCG INDUSTRY

CONSUMPTION EXPENDITURE Urban People

19239481
60000000 59107944

17365469
58000000 57254681

14753559
13000335
11799237

56000000 55420910
10468575
9347273

54000000
53608403

51818338
52000000

50048763
50000000

48000000
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018

Source: World Bank Source: World Bank

 PORTER’S FIVE FORCES – FMCG INDUSTRY

1 ‘TROIMASHIK’
LOW 2 MODERATE 3 VERY HIGH

Threat of Threat of Bargaining Power

Entrants Substitutes Of Buyers

4 LOW 5 ‘TROIMASHIK’
VERY HIGH

Bargaining Power Rivalry Among

Of Suppliers Competitors

Source: EBLSL Securities Limited

INDUSTRY LIFE CYCLE – FCMG INDUSTRY
Introduction Growth Maturity Decline
Low Sales Increasing Sales Constant Sales Reducing Sales
High Costs Reducing Cost Reducing Costs Constant Costs
No Profits Some Profit Increasing Profit Reducing Profit

+16%

Source: EBLSL Securities Limited

COMPANY
BACKGROUND
(GSK BANGLADESH)
COMPANY PROFILE – GSK BANGLADESH

Sector Pharmaceuticals & Chemicals

Ticker GLAXOSMITH
Market Cap (BDT MN) 120.46
No. of Shares Outstanding 12,046,449
EPS (BDT)(9 Month,2019) 43.39

1 One of the top MNC’s in Fast Moving Consumer Goods Sector of Bangladesh

2 Started Business in 1969

3 In Bangladesh GSK held 6th position in pharmaceutical industry

VRIN MODEL- COMPETITIVE ADVANTAGE

V R I N
Value Rareness Imitability Non-substitutable

DO NOT Add
Raw Material Value
Available Imitable Substitutable

DO Add Hard to
Human Resource Value
Available
Imitate
Non-Substitutable

DO Add Imitable but

Ideas Value
Not Available
Costly
Non-Substitutable

DO Add Available Imitable but

Technology Value Costly
Non-Substitutable
GENERIC BUSINESS STRATEGIES- GSK BANGLADESH

LOW COST UNIQUE PRODUCT

WIDE SEMENTATION
Cost Leadership

Differentiation
Strategy
NARROW SEMENTATION

Low Cost Focus Differentiation Focus

Strategy Strategy
ANSOFF MATRIX- GSK BANGLADESH

EXISTING PRODUCT NEW PRODUCT

EXISTING MARKET
Market Product
Penetration Development
NEW MARKET

Diversification

Market
Development
BCG MATRIX- GSK BANGLADESH

LOW MARKET SHARE HIGH MARKET SHARE

HIGH GROWTH
Star
Question
Mark
LOW GROWTH

DOG Cash Cow

 SWOT ANALYSIS – GSK BANGLADESH

S W O T
STRENGTH WEAKNESS OPPORTUNITY THREAT

- Brand Image - Weak Distribution Channel - Increasing Middle and - Competitor’s Aggressive
- Available Raw Material Affluent Class Pricing
- Customer Satisfaction - Innovation
- High Quality Employees - Untapped Market
- Superior Technology - Cheap Labor Cost
- Economies of Scale
MAJOR
ASSUMPTIONS
MAJOR ASSUMPTIONS - REVENUE

Growth Rates of Individual Products have been Used

MAJOR ASSUMPTIONS - OTHERS
MAJOR ASSUMPTIONS - OTHERS
MAJOR ASSUMPTIONS - OTHERS
 MAJOR ASSUMPTIONS – ASSET AT COST
Historical Data Forecasted Data
Glaxo Smithkline Bangladesh Ltd
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Property Plant and Equipment 1258371 1396887 1508598 1560298 1476318 1603246 1744083 1900505 2074401 2267907
Depreciation 64792 118345 120595 124985 111788 119619.1 130008.3 141522.9 154298.5 168488.1
Accumulated Depreciation 722235 805047 814556 872748 893561 1013180 1143188 1284711 1439010 1607498
Carrying Value 536136 591840 694042 687550 582757 590065.4 600894.8 615793.6 635391 660409.4
Capital Expenditure in PPE 126927.5 140837.8 156421.7 173895.9 193506.5
Change in PPE 7308.387 10829.46 14898.78 19597.39 25018.34

Freehold land 221 221 221 221 221 221 221 221 221 221
% change in Freehold Land 0% 0% 0% 0%
% Forecasted change in Freehold Land 0% 0% 0% 0% 0%
Leasehold lands 619 619 619 619 619 619 619 619 619 619
Depreciation 7 7 7 7 18 9.2 9.2 9.2 9.2 9.2
Accumulated Depreciation 174 181 188 195 213 222.2 231.4 240.6 249.8 259
% change in Leasehold lands 0.00% 0.00% 0.00% 0.00%
% Forecasted change in Leasehold lands 0.00% 0.00% 0.00% 0.00% 0.00%
% Depreciation Charged 1.13% 1.13% 1.13% 1.13% 2.91%
% Forecasted Depreciation Charged 1.49% 1.49% 1.49% 1.49% 1.49%
Freehold Buildings 142681 142681 142681 142681 142681 142681 142681 142681 142681 142681
Depreciation 3267 3285 3279 3324 3383 3307.6 3307.6 3307.6 3307.6 3307.6
Accumulated Depreciation 60947 64232 67511 70835 74218 77525.6 80833.2 84140.8 87448.4 90756
% change in Freehold Buildings 0.00% 0.00% 0.00% 0.00%
% Forecasted change in Freehold Buildings 0.00% 0.00% 0.00% 0.00% 0.00%
% Depreciation Charged 2.29% 2.30% 2.30% 2.33% 2.37%
% Forecasted Depreciation Charged 2.32% 2.32% 2.32% 2.32% 2.32%
Plant and machinery 632385 718648 700527 808662 867106 940339.3 1019758 1105883 1199283 1300571
Depreciation 43501 49164 59043 62756 58585 68955.61 74779.4 81095.05 87944.11 95371.61
Accumulated Depreciation 393421 442586 449185 511940 570229 639184.6 713964 795059.1 883003.2 978374.8
% change in Plant and machinery 13.64% -2.52% 15.44% 7.23%
% Forecasted change in Plant and machinery 8.45% 8.45% 8.45% 8.45% 8.45%
% Depreciation Charged 6.88% 6.84% 8.43% 7.76% 6.76%
% Forecasted Depreciation Charged 7.33% 7.33% 7.33% 7.33% 7.33%
Furniture, fixtures and equipment 209322 226939 203704 305004 341730 392945 451835.7 519552.2 597417.5 686952.4
Depreciation 6817 20412 18475 19698 26224 27862.08 32037.77 36839.26 42360.36 48708.9
Accumulated Depreciation 116115 133351 121696 139311 149912 177774.1 209811.8 246651.1 289011.5 337720.4
% change in Furniture, fixtures and equipment 8.42% -10.24% 49.73% 12.04%
% Forecasted change in Furniture, fixtures and equipment 14.99% 14.99% 14.99% 14.99% 14.99%
% Depreciation Charged 3.26% 8.99% 9.07% 6.46% 7.67%
% Forecasted Depreciation Charged 7.09% 7.09% 7.09% 7.09% 7.09%
Vehicles 252864 242619 254341 204038 123961 126440.2 128969 131548.4 134179.4 136863
Depreciation 11200 45477 39791 39200 23578 19484.64 19874.34 20271.82 20677.26 21090.8
Accumulated Depreciation 151578 164697 175976 150467 98989 118473.6 138348 158619.8 179297.1 200387.9
% change in Vehicles -4.05% 4.83% -19.78% -39.25%
% Forecasted change in Vehicles 2.00% 2.00% 2.00% 2.00% 2.00%
% Depreciation Charged 4.43% 18.74% 15.64% 19.21% 19.02%
% Forecasted Depreciation Charged 15.41% 15.41% 15.41% 15.41% 15.41%
Capital work-inprogress 20279 65160 206505 99073 0 0 0 0 0 0
MAJOR ASSUMPTIONS – INTANGIBLE ASSET
MAJOR ASSUMPTIONS – OTHERS
MAJOR ASSUMPTIONS – RETAINED EARNINGS
COMPANY
VALUATION
BETA ESTIMATION
BETA ESTIMATION & CAPM

Particulars Value
Covariance 0.0007
Variance of Market Return 0.0017
Beta 0.4085
Average Monthly Market Return 0.0007
Yearly Market Return 0.0081

Particulars Value
Risk Free Rate 8.44%
Market Return 12%
Beta 0.4085
Cost of Equity 9.89%
DISCOUNTED CASH FLOW (DCF) VALUATION

Particulars Value
Terminal Growth rate 5.33%
WACC 9.89%
Cash (‘000) 3,419,507
Number of share (‘000) 12,047
 DISCOUNTED CASH FLOW (DCF) VALUATION

FCFE Method 2019 2020 2021 2022 2023

EBIT(1-T) 894,164 945,513 1,004,173 1,071,678 1,149,923
(Add) Depreciation and 126,082 136,471 147,986 160,762 174,951
Amortization)
(Less) Capital Expenditure 126,928 140,838 156,422 173,896 193,506

(Less) % in NWC 1,436,500 (37,411) (42,285) (48,328) (55,850)

FCFF (543,182) 978,558 1,038,022 1,106,872 1,187,218

Forecasted Share Price

BDT 1662
Terminal Value 27,421,574
Total Cash Flow (543,182) 978,558 1,038,022 1,106,872 28,608,791
PV of Cash Flow 19,706,453

Net Debt 3,102,713

FCFE 16,603,740

Cash 3,419,507
Enterprise Value 20,023,247

No. of Share 12,047

Outstanding
Share Price 1,662
SUSTAINABLE GROWTH RATE

Sustainable Growth Rate

7.81%
DIVIDEND DISCOUNTING MODEL (DDM) VALUATION

Zero Dividend Growth Model

Dividend (For Year 2018) 54.99979247 Forecasted Share Price
Required Rate of Return
Share Price
9.89%
555.8729278
BDT 555.87
DIVIDEND DISCOUNTING MODEL (DDM) VALUATION

Constant Dividend Growth Model

Dividend (For Year 2018) 54.99979247 Forecasted Share Price

BDT 2849.68
Dividend Growth Rate 7.81%
Required Rate of Return 9.89%
Share Price 2849.675305
 DIVIDEND DISCOUNTING MODEL (DDM) VALUATION

Multistage Dividend Growth Model

Dividend Per Share Discounted Dividend at 9.89%
2019 65.00883958 59.15578285
2020 68.74199648 56.92089572 Forecasted Share Price
2021 73.00669914 55.00942301
2022
2023
77.9144891
83.60302498
53.4216621
52.16100526
BDT 1509.81
2024 90.13532249 1233.141639
Share Price 1509.810408
 WEIGHTED PRICE BY DDM MODEL

Weighted Average Share Price According to DDM Model

Price Weight Forecasted Share Price
Zero Dividend Growth Model 555.8729278 10%
Constant Dividend Growth Model
Multi-Stage Dividend Growth Model
2849.675305
1509.810408
35%
55% BDT 1883.37
Weighted Average Share Price 1883.369374
RELATIVE VALUATION – P/E RATIO

Forecasted Share Price

BDT 1731.19
RELATIVE VALUATION – P/B RATIO

Forecasted Share Price

BDT 5053.78
RELATIVE VALUATION – P/S Ratio

Forecasted Share Price

BDT 1960.61
RELATIVE VALUATION – Weighted Average Price

Forecasted Share Price

BDT 2166.69
RETURN CALCULATION
AND DECISION
 RETURN CALCULATION & DECISION

Determination of Target Price

Valuation Weight Price
DCF 50% 1,662.16
DDM 20% 1,883.37
Relative Valuation 30% 2166.69
DECISION
Target Value 1,857.76
BUY
AS
Determination of Return
Closing Price (10 February, 2020)
Target Price
1,809.9
1857.76
UNDERVALUED
Return 2.64%