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MOSL: GSK PHARMA: Pain and vaccine therapies hinder revenue growth (GLXO IN, Mkt Cap USD3.2b, CMP INR1494, TP INR1580, 6% Upside, Neutral)

• GSK Pharma (GLXO) delivered lower-than-expected result in 1QFY23 owing to muted sales in pain/hormone therapies and delay in recovery of vaccine therapy sales.
• We cut our EPS estimates for FY23/FY24 by 4%/5%, respectively, factoring in slower off-take of vaccine segment and elevated operational costs. We expect 9% earnings CAGR over FY22-24.
• We value GLXO at 37x 12M forward earnings to arrive at our TP of INR1,580. We maintain our Neutral rating given limited upside from current levels.

 

Superior product mix drives profitability on YoY basis

• GLXO's revenue rose 4% YoY to INR7.5b (v/s est. of INR8.2b).
• Gross margin (GM) expanded 270bp YoY to 61.5% due to product mix.
• EBITDA margin improved at a lower rate of 150bp YoY to 20% because of higher other expenses (+430bp YoY as a % of sales) offset by lower employee cost (-310bp YoY as a % of sales).
• EBITDA grew 12.2% YoY to INR1.5b (v/s est. of INR1.9b)
• PAT rose 8.3% YoY to INR1.2b for the quarter (v/s est. of INR 1.4b)

Key highlights

• The quarterly growth underlines the strong momentum across focus brands.
• While GLXO has maintained its leadership position in the self-pay vaccines market, the overall vaccines market continues to be in a declining mode.
• During 1QFY23, GLXO launched the parent's innovative products, Trelegy Ellipta, the first single-inhaler triple therapy (SITT) in India for Chronic Obstructive Pulmonary Disease (COPD) patients in a once-daily regime for patients aged 18 years and above.
• Secondary sales data from AIOCD indicates that Dermatology /Anti-Infective (~29%/~26% of overall sales, respectively) saw a ~27%/20% YoY growth in 1QFY23, driving the outperformance against IPM.
• Neosporin/T-Bact in Derma therapy grew ~48.2%/41.5% YoY, respectively. Augmentin rose ~29% YoY in 1QFY23 according to AIOCD.
• Pain therapy (11% of sales) declined 21% YoY and Hormones therapy (8% of sales) declined 9% YoY in 1QFY23.
• Vaccines (~11% of sales) were flattish YoY, with sales recovering post-COVID. However, Infanrix Hexa vaccines exhibited 30% YoY growth for the quarter.
• GLXO reported a volume growth of 2% and price hike of 5.8% YoY for the 12M ending Jun'22 supported by the 2.1% growth from new launches.