Result Update GSK Pharma Buy Margins continue to hold above 21% The company continues to improve their margins. Company reported overall flat revenue with EBITDA margins at 2% taking the PAT growth to 7%. Revenue is deflated by an estimated 5% during the quarter, that is predominately profit neutral, and arisi88ng from the impact of the implemented GST rates. Adjusting for GST, high single to double digit volume growth on key brands and therapy areas is observed by the management. During the quarter, the company has received the money in advance towards disposal of Thane land. Q3FY18 Financial Highlights Revenues was flat YoY to ` 7.bn. EBITDA jumped 172% YoY to ` 1.4bn, taking margin to 2.1% (vs 7.4% last year). Sequentially the product mix has hurt the gross margins which we believe largely seasonal in nature. Reported PAT witnessed a growth of 69% YoY to ` 897mn (adjusting for theexceptional income in base PAT grew by 111%). Capex Plans The ongoing capacity expansion at Vemgal is underway with a planned capex of ` 1bn. This facility is being built on a 5-acre plot and supposed to manufacture 8bn tablets and 1bn capsules. In addition to the site infrastructure the facility will include a warehouse, employee welfare center other utilities to support manufacturing and packaging activities. This capex is expected to lay down the base for sustainable growth in the coming years. Company looks at spending nearly ` 5.bn on capex in FY18E. Outlook and Valuation We maintain our positive outlook on the stock. Company has successfully managed to address vaccines shortages and other supply constrains from parent group last year. It re-launched Neosporin and two new launches in FY17 (mostly in last quarter) which is expected to reflect better revenue traction in FY18E. However, given GST implementation fiasco these efforts may not fully be visible this fiscal. Company is yet to launch three more respiratory products and one diabetic drug along with two more vaccines from its parent s pipeline over coming two years. The ongoing capacity expansion at Vemgal and Nashik is expected to get more earnings traction from FY19E onwards. We have a BUY rating on the stock with a rolled over target price of ` 3,1. We would recommend adding to the positions on every decline. At CMP of ` 2,439, the stock is trading at 46x FY19E EPS of ` 53 and 38x FY2E EPS of ` 64. Q3FY18 Result (` Mn) Particulars Q3FY18 Q3FY17 YoY Q2FY18 QoQ Net Sales 7,39 7,64 (.3) 8,363 (15.5) Operating profit 1,418 521 172.1 1,921 (72.9) EBITDA 1,418 521 172.1 1,921 (72.9) Other Income 12 148 (19.1) 96 53.7 Depreciation 134 66 12.4 77 (14.5) PBT 1,44 63 132.9 1,94 (68.9) Tax 57 252 11.1 688 (63.4) Exceptional item 179 52 PAT 897 53 69.4 1,33 (59.4) (bps) (bps) Operating margin 2.1 7.4 1,277 23. (282) EBITDA margins 2.1 7.4 1,277 23. (282) Tax Rate 36.1 41.8 (572) 35.5 63 NPM 12.7 7.5 525 15.6 (284) February 2, 218 CMP ` 2,439 Target / Upside ` 3,1/27% BSE Sensex 35,67 NSE Nifty 1,761 Scrip Details Equity / FV Market Cap ` 847mn / `1/- ` 27bn USD 3.2bn 52-week High/Low ` 2,795/2,39 Avg. Volume (no) 15,615 NSE Symbol Bloomberg Code Shareholding Pattern Dec 17 GLAXO GLXO IN Promoters 75. MF/Banks/FIs 1.7 FIIs 2.1 Public / Others 12.2 Valuation (x) FY18E FY19E FY2E P/E 52.5 45.9 38. EV/EBITDA 35.3 28.4 22.4 ROE 19.3 21.3 24.6 ROCE 25.5 27.9 31.9 Estimates (` mn) FY18E FY19E FY2E Net Sales 3,143 33,76 39,837 EBITDA 5,661 7,81 8,949 PAT 3,951 4,515 5,45 EPS 46.5 53.1 64.1 Sr. Analyst: Cyndrella Carvalho Tel: +9122 496 9724 E-mail: cyndrella@dolatcapital.com Associate: Srishti Tel: +9122 496 9772 E-mail: srishti@dolatcapital.com
Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Revenue gaining momentum EBITDA margin at 2% in Q3FY18 1 Revenue Growth 24 2.4 EBITDA EBITDA Margin 32 8 12 1.8 24 5 1.2 16 3 (12).6 8 (24). Recovering PAT growth Downtrend in Interest Income as expected 1.6 PAT Growth 15 (` mn) 28 Other Income Growth 3 1.2 75 21 2.8 14 1.4 (75) 7. (15) (1) February 2, 218 2
Income Statement (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Net Sales 29,265 3,143 33,76 39,837 Growth 5.8 3. 12. 18. Total Expenditure 25,571 24,84 27,71 31,331 Raw material consumed 5,237 6,24 6,752 7,569 Purchase of finished goods 7,97 7,87 7,765 9,83 Decrease/(Increase) in stocks 834 (766) 1 13 Employee benefit expenses 4,83 4,521 5,42 6,294 Selling & Distribution expenses 2,465 2,864 2,87 3,386 Administrative expenses 2,937 3,44 2,695 3,113 Other operating expenses 1,361 1,13 1,587 1,872 Operating profit 3,455 5,514 6,925 8,785 Other operating income 735 146 156 164 EBIDTA (Excl. Other Income) 4,19 5,661 7,81 8,949 EBIDTA (Incl. Other Income) 4,918 6,236 7,529 9,148 Other Income 728 576 448 198 Depreciation 263 295 771 988 Exceptional Items (457) Profit Before Tax 5,112 5,941 6,758 8,159 Tax 1,744 1,99 2,244 2,79 Net Profit 3,368 3,951 4,515 5,45 Adj Net Profit 2,911 3,951 4,515 5,45 Growth (22) 36 14 21 Balance Sheet (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Sources of Funds Equity Capital 847 847 847 847 Reserves 19,222 2,123 2,573 21,958 Net Worth 2,69 2,97 21,42 22,85 Secured Loans 1 1 1 1 Unsecured Loans 6 Loan Funds 16 1 1 1 Total Capital Employed 2,85 2,98 21,43 22,815 Applications of Funds Net Block 2,527 11,87 14,315 16,216 Capital Work in Progress 6,55 4, 4, 4, Non-current Investments 54 54 54 54 Long-term loans and advances 161 888 1,113 1,92 Other non-current assets 4,478 4,65 4,35 3,91 Cash & current investment 9,321 7,89 5,688 6,518 Other current assets 7,421 6,135 6,379 6,872 sub total 21,381 18,176 17,215 18,384 Less: Current Liabilities & Provisions Current Liabilities 6,723 6,988 7,613 8,731 Provisions 3,21 5,349 6,541 7,17 sub total 9,933 12,337 14,154 15,838 Total Assets 2,85 2,98 21,43 22,815 E Estimates Cash Flow (` mn) Particulars Mar17 Mar18E Mar19E Mar2E Profit before tax 5,112 5,942 6,759 8,16 Depreciation 263 295 771 988 Change in working capital 1,673 2,455 1,179 1,211 Total tax paid (1,624) (1,571) (2,244) (2,29) Others (728) (576) (449) (199) Cash flow from oper. (a) 4,696 6,545 6,17 7,952 Capital expenditure (4,127) (6,8) (4,) (2,889) Change in investments 6 Others (11) 57 479 (167) Cash flow from inv. (b) (4,132) (6,23) (3,521) (3,56) Free cash flow (a+b) 564 315 2,495 4,896 Equity raised/(repaid) Debt raised/(repaid) (8) (6) Dividend (incl. tax) (3,61) (2,541) (3,896) (4,66) Others (2,93) () () Cash flow from fin. (c) (5,162) (2,547) (3,896) (4,66) Net chg in cash (a+b+c) (4,598) (2,233) (1,41) 83 Important Ratios Particulars Mar17 Mar18E Mar19E Mar2E (A) Measures of Performance EBIDTA Margin (excl. O.I.) 14.3 18.8 21. 22.5 Interest / Sales.... Tax/PBT 34.1 33.5 33.2 33.2 Net Profit Margin 9.9 13.1 13.4 13.7 (B) As Percentage of Net Sales Raw material consumed 17.9 2.7 2. 19. Purchase of finished goods 27. 25.9 23. 22.8 Dec./(Increase) in stocks 2.8 (2.5).. Employee benefit expenses 16.5 15. 16. 15.8 Selling & Distribution Exp. 8.4 9.5 8.5 8.5 Administrative expenses 1. 1.1 8. 7.8 Other operating expenses 4.6 3.8 4.7 4.7 (C) Measures of Financial Status Debt / Equity (x).... Interest Coverage (x).... Average Cost Of Debt.... (D) Measures of Investment EPS (`.) 34.4 46.5 53.1 64.1 CEPS (`.) 37.5 5. 62.2 75.8 DPS (`.) 3. 29.9 39.9 39.9 Dividend Payout 9.9 77.2 9. 74.6 Profit Ploughback 9.1 22.8 1. 25.4 Book Value (`.) 236.9 246.7 252. 268.3 RoANW 13.9 19.3 21.3 24.7 RoACE 19.6 25.5 27.9 31.9 (E) Valuation Ratios CMP (`.) 2,439 2,439 2,439 2,439 P/E (x) 71. 52.5 45.9 38. Market Cap. (`. Mn.) 26,612 26,612 26,612 26,612 MCap/ Sales (x) 7.1 6.9 6.1 5.2 EV (`. Mn.) 197,36 199,533 2,934 2,14 EV/Sales (x) 6.7 6.6 6. 5. EV/EBDITA (x) 47.1 35.2 28.4 22.4 P/BV (x) 1.3 9.9 9.7 9.1 FCFE Yield.3.1 1.2 2.4 Dividend Yield 1.2 1.2 1.6 1.6 E Estimate February 2, 218 3
Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 4 35 3 25 Month Rating TP (`) Price (`)* Oct 16 Buy 3,5 2,9 May 17 Buy 3,5 2,46 Jul 17 Buy 3,5 2,51 Oct 17 Buy 3,5 2,425 * As on Recommendation Date 2 GSK Pharma Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 496 979 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 496 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 496 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 496 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 9748 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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