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3QCY2011 Result Update | FMCG

November 8, 2011

GSK Consumer
Performance Highlights
(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
3QCY11 613 95 16 79 % yoy 17.5 24.1 87bp 31.1 Angel Est 735 112 15 90 % Diff (2.1) 5.6 119bp 14.7

`2,563 FMCG 10,766 0.4 2,575/1,930 6,211 10 17,570 5,289 GLSM.BO SKB@IN

3QCY11 720 118 16.4 103

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

GSK Consumer reported a strong performance for 3QCY2011, which was in-line with our estimates on the revenue front. The companys top line grew by 17.5% yoy to `720cr (`613cr). On the operating front, the company recorded an 87bp yoy increase in its operating margin to 16.4%. Earnings for the quarter grew by 31% yoy to `103cr (`79cr) on account of higher other income. We maintain our Neutral view on the stock. Key highlights of the quarter: GSK Consumer reported impressive top-line growth for 3QCY2011, driven by robust volume growth and pricing. Top-line growth stood at 17.5% yoy, of which volume growth comprised ~10% yoy and pricing contributed ~7% yoy growth. Horlicks reported robust volume growth of 10% yoy and volumes of Boost grew by 11% yoy. The biscuits segment reported ~35% yoy growth. Foodles reported subdued growth during the quarter on account of distribution-led problems. Outlook and valuation: We maintain our revenue and earnings estimates for the company. At the CMP of `2,563, the stock is trading at 26.1x CY2012E EPS of `98.3. Due to the run-up in the stock price, we do not see any further upside in the stock and, hence, continue to maintain our Neutral view on the stock. Key financials
Y/E Dec. (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 43.2 16.5 14.2 26.2

Abs. (%) Sensex GSKCHL

3m 3.4 8.9

1yr (15.7) 11.5

3yr 76.3 360.2

CY2009 1,922 24.6 230 21.2 16.2 54.7 46.8 11.9 27.9 32.3 5.2 32.1

CY2010 2,306 20.0 300 30.1 16.3 71.2 36.0 11.2 32.2 36.9 4.3 26.0

CY2011E 3,723 61.4 482 60.8 16.8 114.5 31.0 9.2 32.6 39.1 3.6 21.9

CY2012E 3,174 (14.8) 413 (14.2) 16.9 98.3 26.1 7.6 31.8 38.3 3.0 18.0

Sreekanth P.V.S 022 3935 7800 Ext: 6841 sreekanth.s@angelbroking.com

Please refer to important disclosures at the end of this report

GSK Consumer | 3QCY2011 Result Update

Exhibit 1: Quarterly performance

Y/E Dec. (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) Reported EPS (`)

3QCY11 720 273 37.9 66 9.2 120 16.6 143 19.9 602 118 16.4 1.0 12 48 153 153 21.2 50 32.6 103 14.3 4.2 24

3CY10 613 228 37.2 58 9.5 108 17.6 124 20.2 518 95 15.5 0.7 10 33 118 118 19.2 39 33.3 79 12.8 4.2 19

% yoy 17.5 19.7 13.8 11.1 15.9 16.3 24.1 41.1 17.0 42.6 29.9 29.9 27.3 31.1

9MCY11 2,083 809 38.8 197 9.4 323 15.5 393 18.9 1,722 362 17.4 2.6 34 118 443 443 21.3 147 33.2 296 14.2 4.2

9MCY10 1,798 687 38.2 169 9.4 281 15.6 345 19.2 1,481 318 17.7 1.9 29 85 372 372 20.7 125 33.7 246 13.7 4.2 59

% chg 15.9 17.8 16.5 15.1 14.0 16.3 14.0 34.9 17.6 38.3 19.1 19.1 17.2 20.1

31.1

70

20.1

Source: Company, Angel Research

Healthy volume growth from its core brands: GSK Consumer posted impressive top-line growth of 17.5% yoy to `720cr (`613cr), led by 10% volume growth and ~8% value growth. During the quarter, the MFD category reported modest growth, with volumes of Horlicks and Boost growing by double digits. Horlicks grew by 10% yoy in volumes and Boost grew by 6% yoy in volumes. Value growth in Horlicks and Boost was 18% and 11%, respectively. The biscuits category grew by ~35% yoy. Management indicated that it has scaled down the sales of Nutribar it is now available in modern trade outlets only. Foodles reported subdued growth during the quarter on account of distribution-led problems.

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Exhibit 2: Robust top-line growth marked by strong volume growth


800 700 600 500
(` cr)

30.0 25.0 20.0 15.0 10.0 5.0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 (yoy %) (yoy %)

400 300 200 100 -

Top-line (LHS)
Source: Company, Angel Research

yoy growth (RHS)

Exhibit 3: Double-digit volume growth


25 20 15
(%)

12.0 10.0 8.0 6.0

10 5 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

4.0 2.0 -

Volume (LHS)
Source: Company, Angel Research

Value (RHS)

Lower operating expenses aid in OPM expansion: GSK Consumer registered gross margin expansion of 70bp yoy during the quarter. On the operating front, the company reported an 87bp yoy expansion, aided by reduction in ad spends (down 97bp yoy), staff costs and other expenses. Earnings growth aided by higher other income: Earnings for the quarter registered 31.1% yoy growth to `103cr (`79cr) on account of increased other income to `48cr and a 65bp yoy decline in tax rate.

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Exhibit 4: PAT grows by 31.1% yoy


130 110 90 70.0 60.0 50.0

Exhibit 5: Gross margin and OPM contract yoy...


80.0 70.0 60.0 50.0 62.3 67.0 59.4 62.1 62.8 64.9 61.9 59.4 62.1

(` cr)

(%)

70 50 30 10

40.0 30.0 20.0 10.0 -

(yoy %)

40.0 30.0 20.0 10.0 15.9 8.8 15.1 16.4 15.5 20.5 11.5 15.1 16.4

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

PAT (LHS)

yoy growth (RHS)

OPM

Gross margin

Source: Company, Angel Research

Source: Company, Angel Research

Investment rationale
Anchor brands to perform well coupled with new launches: We expect GSK Consumer to perform well with its anchor brands Horlicks and Boost. Also, with the launch of innovative and premium products, the company tends to maintain its margins and market share. In the MFD category, we expect Horlicks to witness double-digit volume growth by CY2012E. Similarly, Boost is also expected to post double-digit volume growth. Though the company has pricing power, innovative launches such as small pack sizes will help the company garner a market share in rural markets and penetrate new areas. Earnings growth and margins to remain stable at ~17%: Over CY2011-12, we expect GSK Consumers margin to remain stable at ~17% due to intensive competition in the business environment, leading to a considerable expenditure in advertisements and the surmounting high raw-material inflation. We expect the companys earnings to witness a 17% CAGR over CY2010-12E.

3Q11

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Exhibit 6: Key assumptions


Sales (` cr) Malted Foods Volume growth (%) Value growth (%) Biscuits Volume growth (%) Value growth (%) Others Total Gross Revenue YoY % Growth Malted Foods Biscuits Others Total Gross Revenue 21.9 24.2 (15.0) 21.8 17.8 28.0 229.1 19.1 18.7 36.1 72.9 20.0 17.0 28.8 50.0 18.1 16.0 23.0 45.5 17.0 CY2008 1,633 16.2 5 60 22 2 7 1,700 CY2009 1,924 10.0 7 77 32 (3) 24 2,025 CY2010 2,284 13.3 5 105 30 5 42 2,431 CY2011E 2,673 12.0 5 135 25 3 63 2,871 CY2012E 3,100 11.0 5 166 20 3 92 3,358

Source: Company, Angel Research

Outlook and valuation


Post 3QCY2011 results, we continue to maintain our revenue and earnings estimates for the company. At the CMP of `2,563, the stock is trading at 26.1x CY2012E EPS of `98.3. Due to the run-up in the stock price, we do not see any further upside in the stock and, hence, continue to maintain our Neutral view.

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Exhibit 7: Peer valuation


Company Asian Paints Britannia Colgate Dabur GSKCHL GCPL HUL ITC Marico Nestle^
^

Reco
Neutral Neutral Neutral Buy Neutral Accumulate Neutral Neutral Neutral Neutral

Mcap (` cr)
30,412 5,638 14,532 17,320 10,766 13,421 83,003 162,539 9,127 42,092

CMP (`)
3,171 472 1,069 100 2,563 415 380 210 149 4,366

TP (`)
115 457 -

Upside (%)
16 10 -

P/E (x) FY11E FY12E


30.9 30.6 33.1 24.7 31.0 25.1 32.6 28.2 29.4 43.2 25.1 21.0 28.3 21.6 26.1 19.3 28.6 23.7 23.6 36.4

EV/Sales (x) FY11E FY12E


3.3 1.1 5.5 3.4 3.6 3.3 3.6 6.3 2.7 5.7 2.7 0.9 4.7 3.0 3.0 2.7 3.2 5.2 2.3 5.0

RoE (%) FY11E FY12E


39.6 37.8 111.7 44.9 32.6 36.6 87.5 32.7 30.4 91.1 38.3 46.0 108.0 41.6 31.8 29.4 85.3 31.5 28.6 72.9

CAGR # Sales PAT


17.3 17.3 14.9 20.5 20.1 22.9 12.7 17.6 15.7 16.1 19.8 36.0 12.9 18.8 23.9 20.2 17.1 17.4 27.6 18.9

Source: Company, Angel Research; Note: ^December year end

Exhibit 8: Absolute returns of GSKCHL vs. Sensex


120% 110% 90% 80% 70% 60% 100%

Exhibit 9: One-year forward P/E band


3,000 2,500 2,000 1,500 1,000 500 -

Dec-10

Apr-11

Mar-11

Aug-11

Jul-11

Feb-11

Oct-11

Nov-10

May-11

Nov-11

Sep-11

Jan-11

Jun-11

Share Price (`)

Dec-05

Dec-07

Dec-09

Apr-05

Apr-07

Apr-09

Aug-06

Aug-08

Sensex

GSKCH

15x

20x

25x

30x

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 10: One-year forward P/E


35.0 30.0 25.0 20.0 15.0 10.0 5.0 -

Exhibit 11: One-year forward Premium vs. Sensex


120% 100% 80% 60% 40% 20% 0% -20% -40% -60%

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Oct-11

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Dec-06

Dec-07

Dec-08

Dec-09

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Dec-10

Aug-10
Apr-11

Source: Company, Angel Research, Note: Blue-line indicates 5-year average

Source: Company, Angel Research, Note: Blue-line indicates 5-year average

Aug-11

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Profit & Loss Statement


Y/E Dec (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Total Expenditure Cost of Materials Advertising Exp Personnel Others 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 Prior Period & Extra. Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY07 1,396 118 1,278 1,278 15.4 1,054 448 164 155 287 225 21.7 17.6 43 181 27.7 14.2 5 68 27.9 245 28.6 245 82 33.6 163 163 163 28.2 12.7 38.7 38.7 28.2 CY08 1,700 159 1,542 1,542 20.6 1,304 586 194 172 352 238 5.7 15.4 42 196 7.9 12.7 5 95 33.4 286 16.6 1.63 284 96 33.5 188 188 190 16.8 12.3 45.2 45.2 16.8 CY08 CY10E 2,025 104 1,922 1,922 24.6 1,611 714 302 201 394 311 30.8 16.2 42 269 37.3 14.0 4 89 25.2 354 23.9 (2.61) 356 124 35.0 233 233 230 21.2 12.0 54.7 54.7 21.2 2,431 125 2,306 2,306 20.0 1,818 865 371 230 352 489 57.3 21.2 40 449 67.1 19.5 3 0 0.0 446 26.1 (0.29) 447 152 34.1 294 294 294 27.7 12.7 71.2 71.2 30.2 CY11E CY12E 2,871 148 2,723 2,723 18.1 2,276 1,026 449 259 542 447 (8.5) 16.4 40 407 (9.4) 14.9 3 119 22.7 523 17.2 523 175 33.5 348 348 348 18.3 12.8 82.7 82.7 16.1 3,358 185 3,174 3,174 16.5 2,637 1,171 540 289 638 537 72.8 16.9 49 488 20.0 15.4 3 136 21.9 622 18.9 622 208 33.5 413 413 413 18.9 13.0 98.3 98.3 18.9

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Balance Sheet
Y/E Dec (` cr) 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-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc Exp Total Assets 457 298 160 17 66 298 371 94 55 222 249 122 664 473 329 144 16 66 853 471 62 320 312 541 767 492 364 128 38 66 1,173 820 56 297 511 662 894 533 397 136 108 66 1,423 976 84 363 800 623 933 707 437 270 57 66 1,508 985 103 420 753 755 1,148 858 486 372 69 66 1,753 1,147 121 486 861 892 1,399 42 604 646 17 664 42 719 761 7 767 42 863 905 (11) 894 42 918 960 (27) 933 42 1,133 1,175 (27) 1,148 42 1,384 1,426 (27) 1,399 CY07 CY08 CY09 CY10E CY11E CY12E

Cash Flow Statement


Y/E Dec (`cr) Profit before tax Depreciation Change in Working Capital Interest/ Dividend(Net) Direct taxes paid Others 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) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY07 CY08 CY09 CY10E CY11E CY12E

245 43 (24) (20) 82 27 188 25 (78) (103) 41 (2) (39) 46 48 94

286 42 (58) (31) 96 (10) 133 29 298 269 31 (7) (24) 377 94 471

354 42 211 (20) 124 (5) 458 41 (41) 89 (20) (68) 349 471 820

334 40 169 (41) 152 4 354 111 (111) (0.00) 245 (41) (204) 39 820 859

523 40 (122) (32) 175 (2) 232 123 (123) 133 (32) (101) 8 976 985

622 49 23 (39) 208 3 449 162 (162) 162 (39) (124) 163 985 1,147

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Key Ratios
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 (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days) 2.8 56 8 62 8 3.3 66 10 59 17 4.3 51 6 71 (30) 3.9 49 8 74 (56) 3.9 49 8 74 (31) 3.7 49 7 72 (29) 29.5 42.1 27.4 27.3 45.7 27.0 32.3 27.9 36.9 32.2 39.1 447.4 32.6 38.3 156.1 31.8 94.2 1,418.7 38.7 38.7 49.0 12.0 153.7 45.2 45.2 55.1 15.0 180.9 54.7 54.7 65.3 18.0 215.2 71.2 71.2 80.7 50.0 228.3 82.7 82.7 92.3 27.0 279.4 98.3 98.3 109.9 33.0 339.1 66.3 52.3 16.7 0.5 8.4 47.6 16.1 56.8 46.5 14.2 0.6 6.7 43.4 13.4 46.8 39.2 11.9 0.7 5.2 32.1 11.1 36.0 31.7 11.2 2.0 4.3 26.0 10.5 31.0 27.8 9.2 1.1 3.6 21.9 8.5 26.1 23.3 7.6 1.3 3.0 18.0 6.9 CY07 CY08 CY09 CY10E CY11E CY12E

November 8, 2011

GSK Consumer | 3QCY2011 Result Update

Research Team Tel: 022 - 3935 3800

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

GSKCHL 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%)

November 8, 2011

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