GSK consumer: Maintain ‘neutral’ with TP at Rs 7,670

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Published: August 8, 2019 2:05:18 AM

Gross margin expanded 40 bps y-o-y to 70%, while EBITDA margin was up 270 bps y-o-y to 23.5% (against estimate of 20.3%). Volume growth for 1QFY20 was broad-based; domestic volume growth for both Horlicks/Boost stood at 4% against overall volume growth of 5.4%, which was supported by exports.

market news, buy shares, buy stocks, Volume market share, HFD, GSKC, GSKC shares, GSKC stocks The company is, however, seeing inflationary trends in RM now, led by steep inflation in dairy (~40% y-o-y) due to significant reduction in milk supply and increase in barley prices. It is expecting high single-digit inflation for the remaining part of the fiscal year.

Sales grew 7.9% y-o-y to `11.9 billion (against estimate of `11.9 billion). Overall HFD volume grew 5.4% y-o-y with domestic HFD volume growth at 4% y-o-y. EBITDA grew 21.8% y-o-y to `2.8 billion (against estimate of `2.4 billion); adjusted PAT grew 36.1% y-o-y to `2.4 billion (against estimate of `1.9 billion). Value market share (MAT Jun’19) for Horlicks stood at 44.3% (up 10 bps y-o-y/ 140 bps q-o-q) while for Boost, it stood at 11.2% (flat y-o-y, up 50 bps q-o-q). Volume market share (MAT Jun’19) for Horlicks/Boost stood at 50.9%/14.9%.

Gross margin expanded 40 bps y-o-y to 70%, while EBITDA margin was up 270 bps y-o-y to 23.5% (against estimate of 20.3%). Volume growth for 1QFY20 was broad-based; domestic volume growth for both Horlicks/Boost stood at 4% against overall volume growth of 5.4%, which was supported by exports. Pricing and deflation led to gross margin expansion in 1QFY20.

The company is, however, seeing inflationary trends in RM now, led by steep inflation in dairy (~40% y-o-y) due to significant reduction in milk supply and increase in barley prices. It is expecting high single-digit inflation for the remaining part of the fiscal year.

We have increased our FY20/21 EPS forecasts by 8.9%/7.2%, led by factors leading to a beat in 1QFY20 (better underlying margin performance and higher other income). There are emerging concerns over margins with the sharp increase in commodity prices, thus, keeping underlying operating margin expansion under check. Given the nature of the HUVR-GSKCH transaction, GSKCH’s stock price should track HUVR’s stock performance and not its own financial performance, unless an unlikely scenario of the deal getting called off arises. We remain ‘neutral’ with a target price of `7,670. (based on the difference between the number of HUVR shares that GSKC shareholders will get and the current market cap of GSKC).

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