GlaxoSmithKline Consumer Healthcare Ltd Result Update: Q3 CY 11 C.M.P: Rs. 2522.00 Target Price: Rs. 2850.00 Date: Dec 05 th 2011 BUY Stock Data: Sector: Food Processing Face Value Rs. 10.00 52 wk. High/Low (Rs.) 2700.00/1930.00 Volume (2 wk. Avg.) 11201 BSE Code 500676 Market Cap (Rs.In mn) 106064.1 Share Holding Pattern 1 Year Comparative Graph SYNOPSIS GlaxoSmithKline Consumer Healthcare Limited engages in the manufacture and sale of nutritional foods and over the counter drugs primarily in India. Company has 85 manufacturing sites in 37 countries, over 16000 R&D. During the quarter ended, the robust growth of Net Profit is increased by 31.16% Rs.1030.10 million. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 22% over 2009 to 2012E respectively. GSK Consumer Healthcare has a strong marketing and distribution network in India. GSK Consumer BSE SENSEX Years Net sales EBITDA Net Profit EPS P/E CY 10 23737.50 4941.10 2998.50 71.29 34.72 CY 11E 27788.00 6049.61 3709.31 88.19 28.06 CY 12E 31956.20 6921.27 4254.23 101.15 24.47 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) GSK Consumer 2522.00 106064.1 83.10 29.78 10.84 500.00 Nestle 4400.00 424229.20 96.88 45.42 49.59 485.00 REI Agro 21.20 20261.40 3.25 6.52 0.87 30.00 Britannia Indus 474.70 56703.30 13.41 35.40 12.56 325.00 Investment Highlights Q3 CY11 Results Update GlaxoSmithkline Consumer Healthcare has posted a net profit of Rs 1,030.30 million for the quarter ended Sept. 30, 2011 as compared to Rs 785.70 million for the quarter ended Sept. 30, 2010, representing increase of 31.16%. Total income basis has increased from Rs 6330.00 million for the quarter ended Sept. 30, 2010 to Rs 7446.00 million for the quarter ended Sept. 30, 2011, representing an increase of 17.63%. Total Income for the quarter rose 18.85% to Rs 7677.10 million, when compared with the prior year period. The EPS of the company is stood at Rs.24.50 for the quarter ended Sep 2011. Quarterly Results - Standalone (Rs in mn) As At Sep-11 Sep -10 %change Net sales 7446.00 6330.00 17.63 PAT 1030.30 785.50 31.16 Basic EPS 24.50 18.68 31.16 2
Break up of expenditure Company Profile GlaxoSmithKline Consumer Healthcare Limited engages in the manufacture and sale of nutritional foods and over the counter drugs primarily in India. It offers malt based foods, cereal based beverages, protein rich food, biscuits, nutrition bar sweetmeat, ready-to-drink, instant noodles with seasoning, and ghee, milk fluid and milk cream. The group exports to Bangladesh, Myanmar, Sri Lanka, Middle East, Nepal and other markets. It was incorporated in 1958 as a 40% subsidiary of Smithkline Beecham Plc of UK. The manufacturing plants of GLAXOCON are located in Nabha (Punjab), Rajahmundry (Andhra Pradesh) and Sonepat (Haryana). The Gurgaon-based R&D center of GLAXOCON has been fully functional. The company plans to leverage its expertise in the food processing industry to innovate and serve the domestic consumers who are becoming more and more health conscious. GLAXOCON wants to improve its out-of-home business by boosting its vending business. The company has a 100-year-old brand like Horlicks in its portfolio. The company also manufactures and markets Boost, Viva, Maltova, biscuits (under Horlicks brand). 3
Apart from that, the company also sells its products like Horlicks and Boost through vending machines. GLAXOCON also has presence in over-the-counter drugs like Crocin, Eno and Iodex. The Sonepat factory of GLAXOCON has a capacity to produce 26,100 tons of Horlicks per annum and is automated in such a way that the final product comes out hygienically without being touched by human hands. Products Products Nutritional Vending OTC Nutritional: Horlicks Boost Maltova Viva Vending OTC Crocin Eno Iodex 4
Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) CY 09 CY 10 CY 11E CY 12E Description 12m 12m 12m 12m Net Sales 19840.50 23737.50 27788.00 31956.20 Other Income 267.70 497.60 794.36 913.51 Total Income 20108.20 24235.10 28582.36 32869.71 Expenditure -16106.70-19294.00-22532.74-25948.43 Operating Profit 4001.50 4941.10 6049.61 6921.27 Interest -42.70-26.00-37.13-40.84 Gross profit 3958.80 4915.10 6012.48 6880.43 Depreciation -420.20-397.10-461.23-502.27 Profit Before Tax 3538.60 4518.00 5551.26 6378.16 Tax -1210.80-1519.50-1841.95-2123.93 Profit After Tax 2327.80 2998.50 3709.31 4254.23 Equity capital 420.60 420.60 420.60 420.60 Reserves 8630.40 9179.80 12889.11 17143.35 Face value 10.00 10.00 10.00 10.00 EPS 55.34 71.29 88.19 101.15 5
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E Description 3m 3m 3m 3m Net sales 7274.20 6738.70 7446.00 6329.10 Other income 165.80 154.80 231.10 242.66 Total Income 7440.00 6893.50 7677.10 6571.76 Expenditure -5647.20-5548.40-6020.70-5316.44 Operating profit 1792.80 1345.10 1656.40 1255.31 Interest -6.60-9.00-10.30-11.23 Gross profit 1786.20 1336.10 1646.10 1244.08 Depreciation -109.30-113.10-116.50-122.33 Profit Before Tax 1676.90 1223.00 1529.60 1121.76 Tax -570.70-398.40-499.30-373.55 Profit After Tax 1106.20 824.60 1030.30 748.21 Equity capital 420.60 420.60 420.60 420.60 Face value 10.00 10.00 10.00 10.00 EPS 26.30 19.61 24.50 17.79 6
Key Ratios Particulars CY 09 CY 10 CY 11E CY 12E No. of Shares(In Million) 42.06 42.06 42.06 42.06 EBITDA Margin (%) 20.17% 20.82% 21.77% 21.66% PBT Margin (%) 17.84% 19.03% 19.98% 19.96% PAT Margin (%) 11.73% 12.63% 13.35% 13.31% P/E Ratio (x) 44.72 34.72 28.06 24.47 ROE (%) 25.72% 31.23% 27.87% 24.22% ROCE (%) 48.85% 55.60% 48.92% 42.27% Debt Equity Ratio 0 0 0 0 EV/EBITDA (x) 26.01 21.07 17.21 15.04 Book Value (Rs.) 215.19 228.25 316.45 417.59 P/BV 11.5 10.84 7.82 5.93 7
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Outlook and Conclusion At the current market price of Rs. 2522.00, the stock is trading at 28.06 x CY11E and 24.47 x CY12E respectively. Earning per share (EPS) of the company for the earnings for CY11E and CY12E is seen at Rs.88.19 and Rs.101.15 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 22% over 2009 to 2012E respectively. On the basis of EV/EBITDA, the stock trades at 17.21 x for CY11E and 15.04 x for CY12E. Price to Book Value of the stock is expected to be at 7.82 x and 5.93 x respectively for CY11E and CY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs. 2850.00 for Medium to Long term investment. Industry Overview India is the second largest producer of food and holds the potential to be the biggest on global food and agriculture canvas, according to a Corporate Catalyst India (CCI) survey. The food industry in India comprises the food production industry and the food processing industry. The food processing industry is one of the largest in India it is ranked fifth in terms of production, consumption, export and expected growth. Growth Drivers of India s food Industry The growth of the food industry is driven by: Higher disposable incomes Change in spending pattern Increasing organised food retailing 10
Increasing export opportunities Favourable regulatory environment and Government support and investment inflows Market Size of Indian food Industry The Indian food industry is projected to grow by US$ 100 billion to US$ 300 billion by 2015, according to a report by a leading industry body and Technopak. The industry, estimated at US$ 200 billion in 2006-07, is projected to reach US$ 300 billion by 2015. During the period, the share of processed food in value terms is expected to increase from 43 per cent to 50 per cent. Exports Exports of organic food products are expected to grow five-fold by 2015, according to the Agriculture and Processed Food Products Export Development Authority (APEDA). The Government agency expects exports to touch US$ 1.43 billion by 2014-15 against US$ 280 million in 2010-11. Exports of floriculture, fresh fruits and vegetables, processed fruits and vegetables, animal products, other processed foods and cereals stood at US$ 5.45 billion as on November 2010-2011, according to DGCIS annual data published by APEDA. Spice Board has revealed that the export of spices from India during 2010-11 has registered an-all-time-high both in quantity and value. During the year, a total of 5, 25,750 tonnes of spices and spice products valued at US$ 1,502.85 million were exported, as against 5, 02,750 tonnes valued at US$ 1,173.75 million in 2009-10. This is an increase of 5 per cent in volume and 28 per cent in dollar terms of value. Food Processing Industry Food processing Industry is one of the largest industries operating in India, and is highly fragmented. Segments The Food Processing Industry operates across various segments that include: 11
Fruits & vegetables Meat & poultry Dairy Marine products, grains and consumer foods (that includes packaged food, beverages and packaged drinking water). Value addition of food products is expected to increase from 8 per cent to 35 per cent by the end of 2025. Fruit & vegetable processing is also expected to increase to 25 per cent of total production in 2025 from the current level of 2 per cent, states the CCI report. Dairy sector that holds highest share in processed food market holds large potential to be exploited. The report reveals that 37 per cent of the total dairy produce is processed of which only 15 per cent is done by the organised sector. Hence, there still lies a lot of scope for investment and development. The sector has attracted foreign direct investment (FDI) worth US$ 1,253.79 million from April 2000 to April 2011, according to the data provided by Department of Industrial Policy and Promotion (DIPP). The amount of FDI inflow for Food Processing Sector in India during the financial year 2010-11 up to November 2010 (8 months) is US$ 129.2 million. Beverages The Indian non-alcoholic drinks market was estimated at around US$ 4.43 billion in 2008 and is expected to grow at a CAGR of around 15 per cent during 2009-2012, according to a report published by market research firm RNCOS, titled "Indian Non- Alcoholic Drinks Forecast to 2012". As per the report, the fruit/vegetable juice market will grow at a CAGR of around 30 per cent in value terms during 2009-2012, followed by the energy drinks segment which will grow at a CAGR of around 29 per cent during the same period. Investment Trends 12
Dan Cake, Portugal, one of the leading names in the world of bakery and confectionery industry and one of the largest butter cookies producers worldwide is set to enter the Indian market. For this, the company has formed a 66:34 joint venture with Pune-based Phadnis Group. US based McCormick & Co, a leading spice maker, will invest close to US$ 115 million in a joint venture it will form with Kohinoor Foods Ltd, a leading marketer of branded Basmati rice and other food products. McCormick's investment, through a Singapore-based subsidiary, will include picking up an 85 per cent stake in the new joint venture Kohinoor Speciality Foods India Pvt Ltd. Kohinoor will hold the balance 15 per cent. Quick food service restaurant chain Subway will set up 45 outlets across the country by 2011-12 entailing investment of almost US$ 9 million. The company has now 205 outlets in India and plans to take its count to 250 by the end of this fiscal. French dairy firm Danone is chalking out a measured expansion plan in India. The corporation has been in India for a little over a year and has introduced yogurt, dahi (curd) and smoothie product range in Pune and Mumbai. It is now focusing on Hyderabad. Players & Strategies Presence of numerous segments across the food industry has generated scope for the players to foray into diversified portfolios and avenues. For instance, domestic player Dabur India ltd. deals in beverages and culinary products and foreign company HUL offers beverages, staples, dairy and snack foods. Where on one hand overseas firms like ITC, HUL, Britannia and Pepsi offer wide product range and quality, Indian players like Haldirams, MTR and Parle leverage their position on competitive pricing and mass reach. Government Initiatives The Indian government has approved funds for establishing 15 mega food parks across the country, Food Processing Secretary Ashok Sinha said. 13
In the wake of social responsibility, the Food Ministry is considering a new law restricting the amount of food wasted at Indian weddings. The Union budget 2011-12 has also allocated US$ 135 million to the Food Processing Ministry from the previous US$ 90 million. As a measure to boost investment in agriculture the minister extended the Viability Gap Funding Scheme (VGFS) for public private partnerships (PPP) for setting up modern storage capacity besides giving infrastructure status to cold chains. Road Ahead The food industry in India has taken off significantly well and will continue to grow rapidly given the unexplored potential in the sector. The growth in this sector is not only indicative of changing development patterns of the country, similar to the developed nations, but also the promise it holds in propelling growth of a certain section of society that has remained constrained for a long time. The government of India had also announced Vision 2015, which lays focus on enhancing the competitiveness of food processing industry in both domestic as well as international markets along with ensuring stable income levels to farmers. The Vision 2015 provides for enhancing the level of processing of perishable to 20 per cent, enhancing value addition to 35 per cent and increasing the share in global food trade from 1.5 per cent to 3 per cent, by 2015. 14
Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 15
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