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8/3/2019 Glaxo-3QCY2011RU-161111
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Please refer to important disclosures at the end of this report 1
Y/E Dec (` cr) 3QCY2011 2QCY2011 % chg (qoq) 3QCY2010 % chg (yoy)Net sales 627 560 12.0 582 7.8Other income 42 42 (0.0) 33 28.4
Gross profit 396 354 11.9 367 8.1
Operating profit 203 186 9.2 209 (2.8)
Reported net profit 162.1 150.4 7.8 158 2.5Source: Company, Angel Research
GlaxoSmithKline Pharma (Glaxo) reported its 3QCY2011 results, which were
below our estimates on the top-line and PAT fronts. The companys OPM for the
quarter came in at 29.0%, lower than our estimate. We continue to maintain ourNeutral view on the stock.Operating performance below estimates: For 3QCY2011, Glaxo reported 4.4%yoy growth in its net sales to `608cr, lower than our estimate of `643cr. The
companys gross margin came in at 60.0%, lower than our expectation of 63.2%.
This led to OPM of 29.0%, below our estimate of 32.4%, for 3QCY2011. During
the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr, below our
expectation of`162cr, due to lower-than-expected OPM.
Outlook and valuation: We expect Glaxos net sales to post a 13.9% CAGR to`2,788cr and EPS to register a 14.6% CAGR to `86.9 over CY201012E.
At current levels, the stock is trading 27.5x and 22.8x CY2011E and CY2012E
earnings, respectively. We continue to maintain our estimates and, hence, remainNeutral on the stock.Key financials (Consolidated)
Y /E Dec. (` cr) CY2009 CY2010 CY2011E CY2012ENet sales 1,908 2,151 2,447 2,788% chg 12.7 12.8 13.8 14.0
Net profit 508 561 443 737% chg (14.1) 10.4 (21.0) 66.4
EPS (`) 60.0 66.2 72.0 86.9EBITDA (%) 35.3 35.3 35.5 35.5
P/E (x) 33.1 29.9 27.5 22.8
RoE (%) 29.8 30.9 21.1 30.7
RoCE (%) 39.9 40.6 41.5 41.0
P/BV (x) 9.4 8.6 7.5 6.6
EV/Sales (x) 7.9 6.9 6.0 5.2
EV/EBITDA (x) 22.3 19.5 17.0 14.5
Source: Company, Angel Research
NEUTRALCMP `1,982
Target Price -
Investment Period -
Stock Info
Sector
Bloomberg Code
Shareholding Pattern (%)
Promoters 50.7
MF / Banks / Indian Fls 17.6
FII / NRIs / OCBs 17.4
Indian Public / Others 14.3
Abs. (%) 3m 1yr 3yr
Sensex 0.3 (15.6) 78.7
Glaxo (7.2) (12.5) 85.2
16,776
10
16,785
0.2
2,475/1,905
4,183
Pharmaceutical
Avg. Daily Volume
Market Cap (`cr)
Beta
52 Week High / Low
5,030
GLAX.BO
GLXO@IN
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Sarabjit Kour Nangra+91 22 39357800 Ext: 6806sarabjit@angelbroking.com
GlaxoSmithKline PharmaPerformance Highlights
3QCY2011 Result Update | Pharmaceutical
November 16, 2011
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Glaxo | 3QCY2011 Result Update
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Exhibit 1:3QCY2011 Standalone performance
Y/E Dec (` cr) 3QCY2011 2QCY2011 % chg (qoq) 3QCY2010 % chg (yoy) 9MCY2011 9MCY2010 % chgNet sales 608 560 8.4 582 4.4 1,771 1,621 9.2Other income 44 42 4.7 33 34.6 144 106 35.6Total income 652 602 8.2 615 6.0 1,915 1,727 10.9Gross profit 364.8 354 3.0 367 (0.5) 1,091 1,029
Gross margin 60.0 63.2 63.0 61.6 63.5Operating profit 176 186 (5.3) 209 (15.7) 573 590 (3.0)
Operating margin (%) 29.0 33.2 35.9 32.3 36.4Interest - - - - - - - -
Depreciation & amortisation 5 5 (0.6) 4 19.5 14 12 19.7
PBT & Exceptional Items 215 223 (3.5) 237 (9.3) 703 685 2.6
Less : Exceptional Items - - - - - (190) (11)
Profit before tax 215 223 (3.5) 237 (9.3) 513 674 (23.9)Provision for taxation 69 73 (4.6) 79 (12.6) 218 227 (3.9)
Profit before exceptional items 146 150 (2.9) 158 (7.7) 294 446 (34.1)Net profit after exceptional items 146 150 (2.9) 158 (7.7) 484 446 8.4EPS (`) 17.2 17.4 18.7 57.1 52.7
Source: Company, Angel Research
Exhibit 2:3QCY2011 Actual vs. Angel estimates
(` cr) Actual Estimates Variation (%)Net sales 608 643 (5.6)
Other income 44.1 42.1 4.8
Operating profit 176.0 203 (13.3)Tax 69.2 78.0 (11.3)
Adj. net profit 146.0 162.1 (9.9)
Source: Company, Angel Research
Revenue grew by 4.4%, below our estimates
For 3QCY2011, Glaxo reported 4.4% yoy growth in its net sales to`608cr, lower
than our estimate of `643cr. Sales of the companys core pharmaceuticals
business grew by 6.5% in 3QCY2011.
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Glaxo | 3QCY2011 Result Update
November 16, 2011 3
Exhibit 3:Sales trend
498
582
491
603560
608
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
100
200
300
400
500
600
700
2QCY20103QCY20104QCY20101QCY20112QCY20113QCY2011
Sales Growth (YoY)
%
Source: Company, Angel Research
OPM dips by 680bp
For 3QCY2011, the companys gross margin came in at 60.0%. Consequently,
the company reported a dip of 689bp yoy in OPM to 29.0%, below our estimate of
32.4%. During the quarter, employee and other expenses increased by 15.5% yoy
to`66.1cr and 21.8% yoy to`122.7cr, respectively.
Exhibit 4:OPM trend
36.5 35.9
30.0
35.0
33.2
29.0
25.0
30.0
35.0
40.0
2QCY10
3QCY10
4QCY10
1QCY11
2QCY11
3QCY11
Source: Company, Angel Research
Net profit in below estimates
During the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr,
below our expectation of`162cr. The decline in the companys net profit can be
attributed to lower-than-expected OPM during the quarter.
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Glaxo | 3QCY2011 Result Update
November 16, 2011 4
Exhibit 5:Adjusted net profit trend
140
158
122
186
150 146
0
50
100
150
200
2QCY20103QCY20104QCY20101QCY2011 2QCY20113QCY2011
Source: Company, Angel Research
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Glaxo | 3QCY2011 Result Update
November 16, 2011 5
Recommendation rationale
Renewed focus on the Indian market: Glaxo is among the top five players in theIndian market, having a market share of ~5%. Post the 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. In CY2011, the
company plans to launch 46 branded generic products, two oncology products
and Synflorix vaccine. During 1QCY2011, the company launched two new
products namely the branded generic Calpol-T in the fast growing pain segment
and Ansolar (Sunscreen gel), which is a product from the Stiefel dermatology
range. The company has also received marketing approvals for two innovative
products namely Votrient for renal carcinoma and Revolade for platelet
depletion.
New product launches since CY2007 accounted for 26% yoy top-line growth
registered by the company in CY2010. Further, in-line with market dynamics,
Glaxo has launched patented products at discounts in India compared to other
markets. During 1QCY2011, the company added 550 MRs, taking its total
strength to 3,450. For CY2011, the company expects total pharma sales to
increase by 14.5% yoy, with operating margin at 3335%.
Outlook and valuation:
Glaxo has a strong balance sheet with cash of `2,000cr (~10% of market cap),
which could be used for future acquisitions or higher dividend payouts. We expect
Glaxos net sales to post a 13.9% CAGR to `2,788cr and EPS to register a 14.6%CAGR to`86.9 over CY201012E. At current levels, the stock is trading 27.5x and
22.8x CY2011E and CY2012E earnings, respectively. We continue to maintain ourestimates and, hence, remain Neutral on the stock.Exhibit 6:Key assumptions
CY2011E CY2012EDomestic sales growth (%) 14.5 14.3
Export sales growth (%) 20.0 18.0
Growth in employee expenses (%) 24.1 14.9
Operating margin (%) 35.5 35.5Capex (`cr) 20.0 20.0
Source: Company, Angel Research
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Glaxo | 3QCY2011 Result Update
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Exhibit 7:One-year forward PE
0
50 0
1000
1500
2000
2500
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
15x 20x 25x 30x
Source: Company, Angel Research
Exhibit 8:Recommendation summary
Company Reco CMP Tgt. price Upside FY2013E FY11-13E FY2013E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharmaceuticals Buy 42 77 82.5 5.5 0.7 4.9 30.6 26.6 37.0
Aurobindo Pharma# Buy 92 166 80.5 6.7 0.8 5.8 9.9 10.2 15.1
Aventis* Sell 2,345 1,937 (17.4) 26.1 3.3 21.6 15.4 15.7 17.1
Cadila Healthcare Buy 723 965 26.8 15.8 2.4 12.8 19.4 25.2 31.1
Cipla Buy 310 369 19.0 16.8 3.1 14.4 23.8 16.6 18.2
Dr. Reddy's Buy 1,614 1,920 19.0 16.8 2.9 11.6 22.7 17.7 25.2
Dishman Pharma Buy 43 68 59.3 3.8 0.9 5.0 3.5 7.1 8.8
Glaxo* Neutral 1,982 - - 22.8 5.2 14.5 14.6 41.0 30.7Indoco Remedies Buy 399 555 39.0 7.2 0.9 5.9 15.6 14.2 16.9
Ipca labs Buy 250 358 34.0 9.7 1.5 6.9 14.8 23.3 24.9
Lupin Buy 456 593 30.1 15.4 2.5 12.8 24.0 23.9 30.8
Orchid Chemicals Buy 153 270 76.5 4.1 1.5 6.9 29.6 11.7 23.4
Ranbaxy* Buy 473 577 22.2 9.0 1.7 7.3 22.0 26.8 25.9
Source: Company, Angel Research; Note: * December year ending;#CAGR in EPS is based on recurring EPS
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Glaxo | 3QCY2011 Result Update
November 16, 2011 7
Profit & loss statement
Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EGross sales 1,748 1,787 1,950 2,195 2,494 2,842
Less: Excise duty 140 94 43 44 47 54Net sales 1,608 1,693 1,908 2,151 2,447 2,788Other operating income 4 3 3 5 5 5
Total operating income 1,612 1,696 1,910 2,156 2,452 2,793% chg 1.1 5.2 12.6 12.9 13.7 13.9
Total expenditure 1,093 1,098 1,234 1,392 1,577 1,798
Net raw materials 637 656 702 788 887 1,008
Other Mfg costs 72 97 109 126 87 99
Personnel 151 173 209 241 299 344
Other 233 173 213 237 305 347
EBITDA 516 595 674 759 870 991% chg 7.3 15.5 13.2 12.5 14.7 13.9
(% of Net Sales) 32.1 35.2 35.3 35.3 35.5 35.5
Depreciation & amortisation 21 16 16 18 17 18
EBIT 495 579 658 741 852 972% chg 7.5 17.0 13.6 12.7 15.0 14.1
(% of Net Sales) 30.8 34.2 34.5 34.4 34.8 34.9
Interest & other charges 1 1 - 1 - -
Other income 134 120 101 126 113 122
(% of PBT) - - - - - -
Share in profit of Associates - - - - - -
Recurring PBT 633 701 761 872 971 1,100% chg 11.6 10.8 8.6 14.5 11.4 13.3
Extraordinary expense/(Inc.) (138) (128) (7) 18 - -
PBT (reported) 770 829 769 854 971 1,100Tax 218 238 261 293 342 363
(% of PBT) 28.3 28.7 33.9 34.4 35.2 33.0
PAT (reported) 553 591 508 561 629 737 Add: Share of earn of associate - - - - - -
Less: Minority interest (MI) - - - - - -
Prior period items - - - - - -
Exceptional items - - - - 186PAT after MI (reported) 553 591 508 561 443 737ADJ. PAT 415 463 500 578 443 737% chg 12.8 11.6 8.1 15.5 (23.4) 66.4
(% of Net Sales) 34.4 34.9 26.6 26.1 18.1 26.4
Basic EPS (`) 65 70 60 66 72 87Fully diluted EPS ( ) 65 70 60 66 72 87% chg 0.2 7.0 (14.1) 10.4 8.8 20.7
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Glaxo | 3QCY2011 Result Update
November 16, 2011 8
Balance Sheet
Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012ESOURCES OF FUNDSEquity share capital 85 85 85 85 85 85Preference capital - - - - - 1
Reserves& surplus 1,296 1,491 1,701 1,867 2,153 2,476
Shareholders funds 1,381 1,575 1,786 1,952 2,238 2,562Minority Interest
Total loans 6 6 5 5 5 5
Deferred tax liability (20) (30) (45) (57) (35) (35)
Total liabilities 1,366 1,551 1,747 1,900 2,208 2,533APPLICATION OF FUNDSGross block 311 326 333 363 383 403
Less: Acc. depreciation 223 236 241 254 271 290
Net block 87 90 93 109 111 113Capital work-in-progress 5 10 21 9 21 21
Goodwill
Investments 1,346 730 148 118 118 118Current assets 566 1,452 2,183 2,510 2,698 3,144
Cash 155 957 1,734 2,003 2,042 2,396
Loans & advances 163 204 138 174 240 273
Other 249 291 311 333 416 475
Current liabilities 640 730 699 845 741 864
Net current assets (73) 721 1,484 1,665 1,957 2,280Mis. Exp. not written off - - - - - -
Total Assets 1,366 1,551 1,747 1,900 2,208 2,533
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Glaxo | 3QCY2011 Result Update
November 16, 2011 9
Cash flow statement
Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EPBT and exceptionals 628 701 761 872 971 1,099
Depreciation 21 16 16 18 17 18(Inc)/Dec in working capital 7 (33) 20 88 (253) 31
Less: Other income 134 120 101 126 113 122
Direct taxes paid 252 246 185 314 370 423
Cash Flow from Operations 269 319 511 538 251 604(Inc.)/Dec.in fixed assets (15) (24) (21) (20.6) (33) (20)
(Inc.)/Dec. in investments 31 - (580) (30) - -
Other income 134 120 101 126 113 122
Cash Flow from Investing 150 96 (500) 75 81 102Issue of equity - - - - - -
Inc./(Dec.) in loans - - - 0.26 - -
Dividend paid (Incl. Tax) 297 (355) (394) (296) (293) (354)
Others (597) 742 1,160 (48) - -
Cash Flow from Financing (300) 387 766 (344) (293) (354)Inc./(Dec.) in cash 119 802 777 269 39 353
Opening cash balances 36 155 957 1,734 2,003 2,042Closing cash balances 155 957 1,734 2,003 2,042 2,396
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Glaxo | 3QCY2011 Result Update
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Key ratio
Y/E Dec CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EValuation Ratio (x)P/E (on FDEPS) 30.7 28.7 33.5 30.3 27.9 23.1P/CEPS 29.6 28.0 32.4 29.4 36.9 22.5
P/BV 12.3 10.8 9.5 8.7 7.6 6.6
Dividend yield (%) 1.8 2.0 1.5 2.0 1.7 2.1
EV/Sales 10.5 9.5 8.0 7.0 6.1 5.2
EV/EBITDA 32.7 26.9 22.6 19.8 17.2 14.7
EV / Total Assets 12.3 10.3 8.7 7.9 6.8 5.8
Per Share Data (`)EPS (Basic) 65.2 69.8 60.0 66.2 72.0 86.9
EPS (fully diluted) 65.2 69.8 60.0 66.2 72.0 86.9
Cash EPS 67.7 71.7 61.9 68.3 54.3 89.1
DPS 36.0 40.0 30.0 40.0 34.6 41.7
Book Value 163.0 186.0 210.9 230.4 264.2 302.5
Returns (%)
RoCE (Pre-tax) 38.8 39.7 39.9 40.6 41.5 41.0
RoE 32.1 31.3 29.8 30.9 21.1 30.7
Turnover ratios (x) Asset Turnover (Gross Block) 5.3 5.3 5.8 6.2 6.6 7.1
Inventory / Sales (days) 52 48 47 46 45 44
Receivables (days) 11 10 11 9 11 14
Payables (days) 77 80 81 82 76 69
WC cycle (ex-cash) (days) 101 98 90 81 87 92
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Glaxo | 3QCY2011 Result Update
November 16, 2011 11
Research Team Tel: 022 - 3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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Disclosure of Interest Statement Glaxo Pharma
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
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