GSK Consumer’s (GSK) Q2FY17 revenue, EBITDA and adjusted PAT came in line with our estimates—revenue dipped 1.7% y-o-y (~1.3% y-o-y fall due to one-off accounting adjustment impact) and EBITDA & adjusted PAT jumped 3.0% and 0.5% YoY, respectively. Domestic health food drinks’ (HFD) volumes dipped in mid-single digits. The company has gained 1% market share in volume terms (to 66.4%) and 0.6% in value terms (to 58.3%) in the HFD category. Reported auxillary income was up 12.1% y-o-y A&P spends remained soft—down 13.2% y-o-y and 165bps y-o-y as percentage of sales. Heightened competition from Patanjali and Mondelez remains key concern.
We anticipate sharpened focus on innovation & premiumisation, introduction of sachets to deepen HFD penetration (~40% in South India) and inclusion of Novartis portfolio to buoy GSK’s growth. Thus, we estimate 14% earnings CAGR over FY16-18. However, intense competition remains a key concern. At CMP, the stock is trading at 27x FY18E. We maintain ‘hold/sector underperformer’ with TP of R 6,342.
Sales growth 1.7% y-o-y sales dip due to 130bps impact of one-off accounting adjustment sitting in base and 40bps hit due to IND-AS reclassification. While domestic sales jumped 94%,export saleswasup 6%. Underlying sales grew 0.4% y-o-y. GSK is seeing signs of revival and receiving healthy response to initial trials.