Glaxosmithkline Pharma's Q4FY19 results (Underperformer) - Weak performance

Q4FY19 result highlights

• Revenues came in at Rs7.5bn stood flat yoy/-9% qoq and stood below our estimates of Rs8.6bn.
• Gross margins stood at 59.4% (+574bps qoq), well above our estimates of 56%. Employee expenses at Rs1.46bn (+11%/16% yoy/qoq) were inline with our est. Other expenses were lower at Rs1.36bn (+23%/7% yoy/qoq) vs our est of Rs1.7bn.
• Healthy gross margins partially offset the miss in revenue est and reported EBITDA stood lower at Rs1.64bn (+14% qoq) below our est of Rs1.72bn.  Reported margins stood at 21.8% (vs 16.6% in Q3) higher than our est of 20% aided by a better product mix & use of smart technology to improve operational efficiencies. Management had earlier guided for 18-20% margins for the year.
• Other income came in considerably higher at Rs525mn (219% qoq) vs est of Rs160mn due to a liability written back that was payable to a group company to the tune of Rs231mn.
• Tax rate was lower at 37.6% vs 40.1% in Q3 (est of 34%). Adj PAT of Rs1.26bn (ex-one off expense of Rs32mn; +49% qoq) was higher than our estimate of Rs1.17bn. Reported PAT stood at Rs1.23bn (+9% qoq).

Key positives: Higher GMs, inline employee costs

Key negatives: Lower revenues, lower other expenses

Impact on financials: We have maintained our FY19/20 earnings estimates

Valuations & view

After a prolonged period of slow growth and supply related disruptions, Glaxo had begun to shows signs of turning the corner in terms of clocking double digit revenue growth over last few quarters. Despite the likely turnaround, rich valuations (~48x FY20E EPS; substantial premium to MNCs like Pfizer and Sanofi) and limited near-term triggers would cap upside from these levels. Reiterate Underperformer, with a target price of Rs1,190/share.