MOSL: GSK CONSUMER (Neutral)-Lower adspends lead to significant margin beat
GSK CONSUMER: Lower adspends lead to significant margin beat
(SKB IN, Mkt Cap USD4.4b, CMP INR7449, TP INR7670, 3% Upside, Neutral)
- Sales grew 7.9% YoY to INR11.9b (v/s est. of INR11.9b). Overall HFD volume grew 5.4% YoY with domestic HFD volume growth at 4% YoY. EBITDA grew 21.8% YoY to INR2.8b (v/s est. of INR2.4b); adj. PAT grew 36.1% YoY to INR2.4b (v/s est. of INR1.9b).
- Value market share (MAT Jun'19) for Horlicks stood at 44.3% (up 10bp YoY/ 140bp QoQ) while for Boost, it stood at 11.2% (flat YoY, up 50bp QoQ). Volume market share (MAT Jun'19) for Horlicks/Boost stood at 50.9%/14.9%.
- Gross margin expanded 40bp YoY to 70%, while EBITDA margin was up 270bp YoY to 23.5% (v/s est. of 20.3%).
- Concall highlights: (1) Volume growth for 1QFY20 was broad-based; domestic volume growth for both Horlicks/Boost stood at 4% v/s overall volume growth of 5.4%, which was supported by exports. (2) Pricing and deflation led to gross margin expansion in 1QFY20. Company is; however, seeing inflationary trends in RM now, led by steep inflation in dairy (~40% YoY) due to significant reduction in milk supply and increase in barley prices. Company is expecting high single-digit inflation for the remaining part of the fiscal year.
Valuation and view: We have increased our FY20/21 EPS forecasts by 8.9%/7.2%, led by factors leading to a beat in 1QFY20 (better underlying margin performance and higher other income). There are emerging concerns over margins with the sharp increase in commodity prices, thus, keeping underlying operating margin expansion under check. Given the nature of the HUVR-GSKCH transaction, GSKCH's stock price should track HUVR's stock performance and not its own financial performance, unless an unlikely scenario of the deal getting called off arises. We remain Neutral with a target price of INR7,670 (based on the difference between the number of HUVR shares that GSKC shareholders will get and the current market cap of GSKC).
Glaxosmithkline Consumer Healthcare Pakistan Limited is a Pakistan-based pharmaceutical company, which provides patient-focused medical solutions. It is engaged in manufacturing and marketing of research based ethical specialties, other pharmaceutical and consumer products. Its segments include Pharmaceuticals and Consumer Healthcare. Its Pharmaceuticals segment includes prescription drugs and vaccines, and consumer healthcare segment includes over-the-counter-medicines, oral care and nutritional care. It deals in Antiinfective, Respiratory, Vaccines, Dermatological, Gastrointestinal, Analgesics, Urology, Central Nervous System, Allergy, Cardiovascular and Vitamins therapy areas. Its pharmaceutical brands include Augmentin, Seretide, Amoxil, Velosef, Zantac and Calpol, and consumer healthcare brands include Panadol, Horlicks, Sensodyne and ENO. Its Global Manufacturing Services in Pakistan consists of three facilities, including West Wharf, F-268 site and Korangi.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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