Analyst Corner: Upgrade GSK to ‘hold’ from ‘reduce’ with TP of Rs 1,539

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Updated: Sep 30, 2020 8:50 AM

Company has witnessed that most of its key brands have outpaced their respective industries and gained market share.

GlaxoSmithKline Pharmaceuticals, Augmentin ES600, Trelegy, COVID-19 vaccine in india, Fluarix TetraGSKP’s exposure only to domestic formulations, strong balance sheet and strong brand equity augurs well for the company.

GlaxoSmithKline Pharmaceuticals (GSKP) held a virtual analyst meet to discuss company’s performance. We cover the highlights below, Company believes its key brands and therapies would continue to grow over the next five years. Company has witnessed that most of its key brands have outpaced their respective industries and gained market share.

Vaccines remains an important growth area followed by respiratory. It will also invest in therapies like oncology but that would take time to scale up. Vaccine contributes ~23% of revenue and is expected to grow in double digits. It’s imported and has lower margin than the company but it would be supported by cost optimisation. Company has received approval for Augmentin ES600, Trelegy and Fluarix Tetra and has filed for Shingrix, Rotarix liquid oral vaccine and Nucala liquid pediatric indication to support growth over long term. In the near term it is focusing on Nucala and Menveo. Company has witnessed a contraction in the dermatology and anti-infective market as patients defer skin treatment and better hygiene has reduced the acute illness. Pandemic caused disruption at the beginning of the lockdown. Company implemented several safety protocols and work from home policy wherever possible. Gradually, ~60% of the workforce was able to achieve ~100% production. Roughly 4,000 employees are working from home. Company witnessed MoM recovery in all therapies and expect to achieve normalcy soon. Company also provided extended credits to its partners (stockists, dealers, etc.) in order to support the system.

GSKP’s exposure only to domestic formulations, strong balance sheet and strong brand equity augurs well for the company. Recent correction has made valuations fair, hence we upgrade to HOLD from Reduce with a target price of rS 1,539/share based on 40xSep’22E EPS. Key downside risks, addition of key drugs in National List of Essential Medicines (NLEM), product concentration and government intervention. Key upside risks, better than expected performance in key products and launch of COVID-19 vaccine in India.

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