Maintain ‘hold’ on GSK Consumer Healthcare with a target price of R6,716 a share after marginally increasing our target multiple to 35x FY17e.
We continue to like GSK’s core business, marked increase in OHC/wellness segment, robust volume growth and investments in new growth drivers, coupled with sustained market share gains. New variants of Horlicks are helping strengthen its hold in the HFD space. At CMP, the stock is trading at 38.7x and 33.3x FY16e and FY17e, respectively.
GSK Consumer’s Q4FY15 sales came below our estimates, while PAT came in line. Key positives include (a) gross margin expansion of 485 bps y-o-y, led by price growth and benign raw material scenario; (b) Ebitda margin expansion of 116 bps y-o-y; and (c) sustained market share gain in Horlicks and Boost of 1.2% and 0.2%.
A key negative was likely flattish overall domestic volume growth, which has slowed down from 5% y-o-y in Q3FY15.
We believe volumes will gradually recover in FY16 from targeted activations. Following correction in SMP/milk prices, gross margin improvement is likely to continue. GSK Consumer logged single-digit sales growth of 8% y-o-y, implying flattish domestic volume growth. Slowing down of volume growth from 5% y-o-y in Q3FY15 is reflective of pressure in urban demand, which should recover in H2FY16.