GlaxoSmithKline offer signals MNC appetite for Indian menu

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SummaryGSK to fork out $1 bn to buy shares of GlaxoSmithKline Pharmaceuticals Ltd at premium price of Rs 3,100 apiece

and vaccines in 2012 were 304 million pounds, a mere 1.15% of GSK Group revenues of 26.4 billion pounds. Revenues from China accounted for 2.87% while those from Latin American countries accounted for 4.76%.

Analysts believe the price of Rs 3,100 being offered is attractive given that it discounts CY14 earnings by about 38.7 times, assuming an earnings per share of Rs 80. “The business has been patchy; so, this is a good price. The company would have to do something extraordinary for there to be significant upside from these levels,” observed an analyst. GlaxoSmithKline Pharmaceuticals Ltd has been embroiled in a dispute with wholesalers and retailers over commissions; Q3CY13 sales fell 7% y-o-y to Rs 620.54 crore while net profits fell 33.7% y-o-y to Rs 100.95 crore.

However, GSK Plc CEO Sir Andrew Witty has not been critical of India’s change in drug pricing policy: “What you will continue to see is governments intervene periodically on pricing; I don’t think that is unexpected or surprising. I continue to believe that the underlying demographic momentum of most of these countries means that over a period of two or three years, very often, the volume compensates for that price effect.”

With their revenues tapering off in developed markets due to patents expiring, global drug majors are now hoping to cash in on the Indian pharmaceutical market which grew 16.6% in CY2012. “India has always been important for Glaxo and it seems to be focusing on long-term prospects. Overall, all foreign companies are looking at emerging markets positively,” Motilal Oswal analyst Alok Dalal observed.

“We made an offer for GSK Consumer last year, that was the priority then. We were very pleased with how that offer went...We continue to review at the centre of GSK capital allocation across the world and we decided this is the moment to bring a further billion dollars into India through GSK Pharmaceuticals,” Redfern said.

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