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Glaxosmithkline Pharma's Q4FY18 results (Underperformer) - Weak performance

Q4FY18 result highlights

• Revenues came in at Rs7.5bn (+6% qoq, -5% yoy), below our estimates of Rs7.9bn.
• Revenues for the quarter continued to be impacted by the deflationary impact in prices on account of the GST implementation
• Gross margins stood at 58.2% (+430bps you: lower 200bps qoq) ahead of our estimates of 55%. Employee expenses grew +12%/6% yoy/qoq to Rs1.3bn inline with our est while other expenses dropped sharply to Rs1.5bn 12%/6% yoy/qoq (partly on account of GST related accounting) inline with est. 
• Aided by better GMs and steady SG&A costs, Glaxo reported EBITDA of Rs1.55bn inline vs our est of Rs1.56bn.  Reported margins stood at 20.7% (vs 20.1% in Q3) higher than our est of 19.7%.
• Other income stood higher at Rs183mn (+23% yoy) vs west of Rs148mn; while depreciation stood higher at Rs94mn vs est of Rs77mn
• Tax rate stood at 35.5% vs 36.1% in Q3 (est of 34%). Adj PAT of Rs1.06bn was broadly inline with our estimate of Rs1.08bn.
• Glaxo has declared a dividend of Rs35 per shares for FY18

Key positives: Higher gross margins

Key negatives: Lower revenues

Impact on financials: We 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 FY19E 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 Rs2,369/share.