Robust volume growth in domestic business (up 8%, higher vs. 4-6% 2-year CAGR trend over past few quarters) and another quarter of healthy GM expansion drove a modest operational beat. Reported PAT growth was aided by one-off gains from tax reversal.
Management remains confident of sustaining mid-to-high single digit volume growth and maintaining margin through a combination of cost-saving initiatives, better mix and judicious price hikes even as it cautioned of higher input cost inflation. GSK-CH share price now trades at parity to HUL share price (GSK-CH shareholders to get HUL shares in the ratio of 4.39:1) post the deal announcement and hence the operating performance has limited impact on the share price rendering rating/TP irrelevant.
We are, therefore, changing our rating to “Not Rated” from ‘Buy’ earlier. GSK-CH’s Q3 print was largely in line with our estimate on revenue/ Ebitda front – revenues grew 7% y-o-y to `11.2 bn and Ebitda grew 15% y-o-y to `2.4 bn, aided by 140 bps y-o-y expansion in margin.
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Recurring PAT grew19% y-o-y to `1.95 bn; however reported PAT growth was higher due to one-off gains from tax reversal of Rs 400 m.
Overall revenue growth at 7.5% was led by ~8.7% volume growth and negative price/mix-led growth due to adverse country mix in exports and higher growth in sachets.
HFD volume growth (including exports) stood at 9.6% (base Horlicks posted double-digit volume growth); however, domestic volumes grew 8% equating to 0.5% negative price/mix-led growth (domestic volume growth dragged by decline in foods due to rationalisation in biscuits portfolio) on account of double-digit growth in sachets. Business auxiliary income grew 18% y-o-y (broad-based growth in OTC portfolio, Sensodyne grew 39% y-o-y).