'Reduce' ratings on GSK Consumer, target price Rs 4,400: Kotak Institutional Equities

Updated: Aug 8 2014, 05:33am hrs
GSK Consumers (GSKCH) 1QFY15 earnings report disappointed revenues, Ebitda and PAT came in 4-6% below our expectations as volume growth slipped to 3% yoy versus our expectation of 8%.

Volume slowdown is reflective of broader industry challenges. We cut our FY2015/16E EPS estimates by 2-3% while raising our target price to R4,400 (on rollover to March 2016), maintaining our target multiple of 27X FY2016E EPS. GSKCH reported a weak quarter missing our estimates on all parameters. Revenues grew 8% y-o-y to Rs 970 crore, 6% below our estimate. Revenue miss was led by (1) lower-than-expected domestic

volume growth, which slipped to a multi-year low 3% yoy and (2) 24% decline in exports driven by certain one-offs and slowdown in Bangladesh. Other operating income growth also slowed down to 19% y-o-y. Ebitda grew 6% y-o-y as Ebitda margin fell 50 bps y-o-y to 17% (our estimate was 16.7%). Gross margins declined 290 bps yoy to 63.6%; Ebitda margin decline was lower as the company rationalized A&SP, employee and other expenses aggressively. Recurring PAT growth was 8% yoy to R130 crore; EPS for the quarter was R31.

GSKCHs domestic revenues grew 10% yoy, a combination of 3% volumes and 7% price-led growth. HFD growth was 9% yoy while the foods business (biscuits, noodles and oats) grew a strong 32% yoy off a small base. The company indicated a 120 bps market share improvement in the HFD segment, implying materially slower market growth.

Kotak Institutional Equities