GSK Consumer’s (GSK) Q4FY18 revenue and EBITDA growth of 7.1% and 15.2% y-o-y, respectively, came in line, while PAT surpassed estimate. Domestic volumes clocked good recovery—up 8% y-o-y on a base of -1%— post 11 quarters of sub-2% y-o-y growth, excluding Q3FY18. The volume growth was led by rural recovery, the company’s focus on high science led innovation & new launches (Horlicks protein+ and Growth+) and improved communication.
Management anticipates next leg of growth from right-towin categories (primarily Horlicks), which also provide scope of premiumisation and deepening penetration via sachets. Outcome of strategic review of the Horlicks brand and intensifying competition, especially from Complan, will weigh on the stock’s performance.
Hence, we prune FY20E target multiple to 30x (from 32x) to arrive at revised TP of Rs 6,659 (earlier Rs 6,885). Maintain ‘HOLD’. GSK’s 7.1% YoY revenue growth was largely volume led, which grew 8% y-o-y (category growth of 6.6% y-o-y). The volume growth was aided by strong recovery in rural areas.
The company’s new launches—Horlicks protein+ and Growth+—have gained meaningful traction and market share, though it’s early days. All this translated into GSK’s market share improving 110bps—80bps by Horlicks and 30bps by Boost.
We believe, with new management at the helm, GSK is now focusing on Horlicks where it believes it has a right to win. Business auxiliary income too picked up—up 10% y-o-y.
Last price hike was in May 2017. The strategy is to deepen penetration in Tier IV and rural areas. GSK’s Parent will review its India investment in lieu of its review of Horlicks brands. The company has established a separate Nutrition vertical.
Though the stock has sharply underperformed due to subdued financial performance in the past two years, we believe the worst is behind. There is clear focus on deepening penetration and execution capabilities. Sustainable demand revival, competitive intensity and outcome of parent’s strategic review of Horlicks remain key monitorables.