We expect a cyclical upturn in FY2016-19 after poor revenue growth in FY2016.
In the medium term, we view Horlicks (health drink) as a natural beneficiary of increasing education spending. We expect the Horlicks base variant to benefit from a recovery in urban consumption, continued good growth of premium variants (which account for c.25% of revenues), currently growing at c.15%, launches of newer products at the > Rs 500/kg price-point , and continued market development and share gains in North India.
We initiate coverage on GSK Consumer with a ‘buy’ rating and a DCF-based target price of R7,500 (20% upside).
GSK’s volume growth in recent years has decelerated as a result of a weak macro environment and constant product price increases.
However, the company is now making efforts to increase consumption/penetration, especially in the North and West, and is also focused on launching new products/ categories to drive growth.
We forecast GSK’s sales to show a c.15% CAGR over FY2016-19, led by price growth of c.8% and volume growth of c.7%.