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MOSL: GSK PHARMA (neutral)-Strategy reset working, but valuations largely capturing benefits

GSK Pharma: Strategy reset working, but valuations largely capturing benefits

(GLXO IN, Mkt Cap USD3.1b, CMP INR1274, TP INR1350, 6% Upside, Neutral)

 

• Focus on product rationalization/operational efficiency reaping results: Sales came in flat YoY at INR7.5b (our estimate: INR7.9b). Gross margin (GM) expanded 120bp YoY (+580bp QoQ) to 59.4%, led by a superior product mix. EBITDA margin improved ~110bp YoY to 21.8% on account of a better GM and lower other expenses (-200bp YoY/ -380bp QoQ), partly offset by increased employee cost (+190bp YoY to 19.5%). Consequently, EBITDA grew ~5% YoY to INR1.6b (our estimate: INR1.4b). Other income includes liabilities written back to the tune of INR231m. Adjusting for the same, PAT stood at INR1.2b (our estimate: INR961m).
• FY19 performance: Sales/EBITDA/PAT grew 8%/19%/25% YoY to INR31.2b/INR6b/INR4.1b.
• Top 25 brands drive growth: GLXO's secondary sales grew 6.8% YoY in the quarter. Among the top brands, Augmentin/Betnovate C/Eltroxin/T-Bact delivered growth of 14%/31%/21%/36% YoY, while other brands witnessed marginally declining/stable sales. Among categories, Vaccines (+23%) injected vigor to growth, followed by Hormones/Derma (+11%/10% YoY). However, Anti-infectives/Pain categories delivered muted growth of 7%/3.8% YoY.