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August 3, 2011
GSK Consumer
Performance Highlights
(` cr) Revenue EBITDA OPM (%) PAT 2QCY11 653.4 98.5 15.1 82.5 2QCY11 537.4 89.4 16.6 71.8 % yoy 21.6 10.2 (155bp) 14.9 Angel Est 664.5 109.6 16.5 85.3 % Diff (1.7) (10.1) (142bp) (3.3)
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code
Bloomberg Code
For 2QCY2011, GSK Consumer reported a strong performance, which was in-line with our estimates. The companys top line grew by 21.6% yoy to `653cr (`537cr). On the operating front, the company recorded a 155bp yoy decline in its operating margin to 15.1%. Earnings for the quarter grew by 15% yoy to `83cr (`72cr). We recommend Neutral on the stock. Key highlights of the quarter: The company reported impressive top-line growth, which was driven by robust volume growth and pricing. Top-line growth stood at 21.6% yoy, of which volume growth comprised ~16% yoy and pricing contributed ~5% yoy growth. Horlicks reported robust volume growth of 16% yoy and volumes of Boost grew by 11% yoy. The biscuits segment reported ~45% yoy growth. Foodles grew by 13% yoy and maintained a market share of 2.8%. Outlook and valuation: We maintain our revenue and earnings estimates for the company. At the CMP of `2,411, the stock is trading at 24.5x CY2012E EPS of `98.3 (in-line with its historical valuations). Due to the run-up in the stock price, we do not see any further upside in the stock and, hence, recommend Neutral with a fair value of `2,295 (`2,163).
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 43.2 28.4 12.9 15.5
3m (3.2) 6.0
Key financials
Y/E Dec. (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
CY2009
CY2010
CY2011E
CY2012E
1,922 24.6 230 21.2 16.2 54.7 44.1 11.2 27.9 32.3 4.9 30.0
2,306 20.0 300 30.1 16.3 71.2 33.9 10.6 32.2 36.9 4.0 24.3
2,723 18.1 348 16.1 16.4 82.7 29.2 8.6 32.6 39.1 3.4 20.5
3,174 16.5 413 18.9 16.9 98.3 24.5 7.1 31.8 38.3 2.8 16.8 Sreekanth P.V.S 022 3935 7800 Ext: 6841 sreekanth.s@angelbroking.com
Y/E Dec. (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) Reported EPS (`)
2QCY11 653.4 265.5 40.6 68.0 10.4 100.0 15.3 121.3 18.6 554.8 98.5 15.1 0.9 11.3 36.0 122.3 122.3 18.7 39.8 32.6 82.5 12.6 4.2 19.6
2CY10 537.4 202.5 37.7 58.9 11.0 74.9 13.9 111.7 20.8 448.0 89.4 16.6 0.6 9.3 28.1 107.6 107.6 20.0 35.8 33.3 71.8 13.4 4.2 17.1
% yoy 21.6 31.1 15.4 33.6 8.6 23.9 10.2 45.2 21.9 28.2 13.7 13.7 11.3 14.9
1HCY11 1,363.4 535.7 39.3 130.4 9.6 203.6 14.9 249.9 18.3 1,119.6 243.8 17.9 1.6 22.2 70.0 290.0 290.0 21.3 96.9 33.4 193.1 14.2 4.2
1HCY10 1,185.8 458.6 38.7 110.5 9.3 173.1 14.6 221.1 18.6 963.3 222.4 18.8 1.2 18.9 51.6 254.0 254.0 21.4 86.1 33.9 167.9 14.2 4.2 39.9
% chg 15.0 16.8 18.0 17.6 13.0 16.2 9.6 31.1 18.0 35.5 14.2 14.2 12.5 15.0
14.9
45.9
15.0
Impressive volume growth from its core brands: GSK Consumer posted impressive top-line growth of 21.6% yoy to `653cr (`537cr), led by 16% volume growth and 5% value growth. The companys domestic sales for the quarter grew by 14% yoy. During the quarter, the MFD category reported robust growth, with volumes of Horlicks and Boost growing by double digits. Horlicks grew by 16% yoy in volumes and Boost grew by 11% yoy in volumes. The biscuits category grew by ~45% yoy. Management indicated that it has scaled down the sales of Nutribar it is now available in modern trade outlets only. Foodles grew by robust 13% yoy during the quarter and has maintained its market share of 2.8%.
August 3, 2011
30.0 25.0 20.0 15.0 10.0 5.0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
500
(` cr)
Top-line (LHS)
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
Volume (LHS)
Value (RHS)
2Q11
August 3, 2011
(yoy %)
(%)
High ad spends and raw-material prices pull down OPM: GSK Consumer registered gross margin expansion of 295bp yoy during the quarter. On the operating front, the company reported a 155bp yoy contraction due to high raw-material prices and high ad spends (up by 138bp yoy). Further fall in operating margin was arrested by controlling staff costs (down by 56bp yoy) and other expenses (down by 222bp yoy) during the quarter. Earnings growth marked by top-line growth and reduction in tax rate: Earnings for the quarter registered 15% yoy growth to `82.5cr (`71.8cr) on account of robust top-line growth, a 28% yoy increase in other income to `36cr (`28cr) and a 71bp yoy decline in the tax rate.
(` cr)
(%)
(yoy %)
70 50 30 10
40.0
40.0 30.0 20.0 10.0 15.9 15.9 8.8 15.1 16.6 15.5 20.5 11.5 15.1
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
PAT (LHS)
2Q11
OPM
Gross margin
Investment rationale
Anchor brands to perform well coupled with new launches: We expect GSK Consumer to perform well with its anchor brands Horlicks and Boost. Also, with the launch of innovative and premium products, the company tends to maintain its margins and market share. In the MFD category, we expect Horlicks to witness double-digit volume growth by CY2012E. Similarly, Boost is also expected to post double-digit volume growth. Though the company has pricing power, innovative launches such as small pack sizes will help the company garner a market share in rural markets and penetrate in new areas. Earnings growth and margins to remain stable at ~17%: During CY201112, we expect GSK Consumers margin to remain at ~17% due to intensive completion in the business environment, leading to a considerable expenditure in advertisements and the surmounting high raw-material inflation. We expect the companys earnings to witness a 17% CAGR over CY201012E.
2Q11
August 3, 2011
August 3, 2011
Reco Neutral Neutral Reduce Accumulate Reduce Accumulate Neutral Neutral Neutral Sell
Mcap (` cr) 29,033 5,686 13,305 18,382 10,142 13,905 70,382 159,830 9,821 40,784
CMP (`) 3,027 476 978 106 2,411 430 323 207 160 4,230
P/E (x) FY11E FY12E 29.5 30.9 30.3 26.2 29.2 23.8 27.6 27.6 30.2 41.9 24.0 21.2 25.9 22.9 24.5 20.7 24.1 23.2 24.2 35.2
EV/Sales (x) FY11E FY12E 3.1 1.1 5.0 3.6 3.4 3.6 3.0 6.2 2.8 5.6 2.6 1.0 4.3 3.2 2.8 3.2 2.7 5.2 2.5 4.8
RoE (%) FY11E FY12E 39.6 37.8 111.7 44.9 32.6 38.7 74.9 32.7 31.5 91.1 38.3 46.1 108.0 41.6 31.8 28.0 74.7 31.5 29.5 72.9
CAGR # Sales PAT 17.3 17.3 14.9 20.5 17.3 13.4 12.7 17.6 15.7 16.1 19.8 36.0 12.9 18.8 17.5 18.2 17.2 17.4 30.8 18.9
Source: Company, Angel Research, Note: # denotes CAGR for FY2011-13E, ^CY ending co.
Dec-05
Dec-07
Dec-09
Apr-05
Apr-07
Apr-09
Aug-06
Aug-08
Oct-10
Nov-10
Feb-11
Sep-10
May-11
Aug-10
Dec-10
Jan-11
Mar-11
Apr-11
Jun-11
Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11
Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Aug-10
Apr-11
Jul-10
August 3, 2011
August 3, 2011
Balance Sheet
Y/E Dec (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc Exp Total Assets 457 298 160 17 66 298 371 94 55 222 249 122 664 473 329 144 16 66 853 471 62 320 312 541 767 492 364 128 38 66 1,173 820 56 297 511 662 894 533 397 136 108 66 1,423 976 84 363 800 623 933 707 437 270 57 66 1,508 985 103 420 753 755 1,148 858 486 372 69 66 1,753 1,147 121 486 861 892 1,399 42 604 646 17 664 42 719 761 7 767 42 863 905 (11) 894 42 918 960 (27) 933 42 1,133 1,175 (27) 1,148 42 1,384 1,426 (27) 1,399 CY07 CY08 CY09 CY10E CY11E CY12E
286 42 (58) (31) 96 (10) 133 29 298 269 31 (7) (24) 377 94 471
354 42 211 (20) 124 (5) 458 41 0 (41) 89 (20) (68) 349 471 820
334 40 169 (41) 152 4 354 111 0 (111) (0.00) 245 (41) (204) 39 820 859
523 40 (122) (32) 175 (2) 232 123 0 (123) 133 (32) (101) 8 976 985
622 49 23 (39) 208 3 449 162 0 (162) 162 (39) (124) 163 985 1,147
August 3, 2011
Key Ratios
Y/E Dec Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days) CY07 CY08 CY09 CY10E CY11E CY12E
62.3 49.2 15.7 0.5 7.9 44.7 15.1 38.7 38.7 49.0 12.0 153.7 29.5 42.1 27.4 2.8 56 8 62 8
53.4 43.7 13.3 0.6 6.3 40.7 12.6 45.2 45.2 55.1 15.0 180.9 27.3 45.7 27.0 3.3 66 10 59 17
44.1 36.9 11.2 0.7 4.9 30.0 10.4 54.7 54.7 65.3 18.0 215.2 32.3 27.9 4.3 51 6 71 (30)
33.9 29.9 10.6 2.1 4.0 24.3 9.8 71.2 71.2 80.7 50.0 228.3 36.9 32.2 3.9 49 8 74 (56)
29.2 26.1 8.6 1.1 3.4 20.5 8.0 82.7 82.7 92.3 27.0 279.4 39.1 447.4 32.6 3.9 49 8 74 (31)
24.5 21.9 7.1 1.4 2.8 16.8 6.4 98.3 98.3 109.9 33.0 339.1 38.3 156.1 31.8 3.7 49 7 72 (29)
94.2 1,418.7
August 3, 2011
E-mail: research@angelbroking.com
Website: www.angelbroking.com
Disclaimer
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
GSKCHL No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) :
August 3, 2011
10