1. Edelweiss puts ‘Hold’ rating on GSK Consumer with target price of Rs 6,342

Edelweiss puts ‘Hold’ rating on GSK Consumer with target price of Rs 6,342

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.

By: | Published: November 10, 2016 6:09 AM

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.

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