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November 8, 2011
GSK Consumer
Performance Highlights
(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
3QCY11 613 95 16 79 % yoy 17.5 24.1 87bp 31.1 Angel Est 735 112 15 90 % Diff (2.1) 5.6 119bp 14.7
`2,563 FMCG 10,766 0.4 2,575/1,930 6,211 10 17,570 5,289 GLSM.BO SKB@IN
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
GSK Consumer reported a strong performance for 3QCY2011, which was in-line with our estimates on the revenue front. The companys top line grew by 17.5% yoy to `720cr (`613cr). On the operating front, the company recorded an 87bp yoy increase in its operating margin to 16.4%. Earnings for the quarter grew by 31% yoy to `103cr (`79cr) on account of higher other income. We maintain our Neutral view on the stock. Key highlights of the quarter: GSK Consumer reported impressive top-line growth for 3QCY2011, driven by robust volume growth and pricing. Top-line growth stood at 17.5% yoy, of which volume growth comprised ~10% yoy and pricing contributed ~7% yoy growth. Horlicks reported robust volume growth of 10% yoy and volumes of Boost grew by 11% yoy. The biscuits segment reported ~35% yoy growth. Foodles reported subdued growth during the quarter on account of distribution-led problems. Outlook and valuation: We maintain our revenue and earnings estimates for the company. At the CMP of `2,563, the stock is trading at 26.1x CY2012E EPS of `98.3. Due to the run-up in the stock price, we do not see any further upside in the stock and, hence, continue to maintain our Neutral view on the stock. Key financials
Y/E Dec. (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 43.2 16.5 14.2 26.2
3m 3.4 8.9
CY2009 1,922 24.6 230 21.2 16.2 54.7 46.8 11.9 27.9 32.3 5.2 32.1
CY2010 2,306 20.0 300 30.1 16.3 71.2 36.0 11.2 32.2 36.9 4.3 26.0
CY2011E 3,723 61.4 482 60.8 16.8 114.5 31.0 9.2 32.6 39.1 3.6 21.9
CY2012E 3,174 (14.8) 413 (14.2) 16.9 98.3 26.1 7.6 31.8 38.3 3.0 18.0
Y/E Dec. (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) Reported EPS (`)
3QCY11 720 273 37.9 66 9.2 120 16.6 143 19.9 602 118 16.4 1.0 12 48 153 153 21.2 50 32.6 103 14.3 4.2 24
3CY10 613 228 37.2 58 9.5 108 17.6 124 20.2 518 95 15.5 0.7 10 33 118 118 19.2 39 33.3 79 12.8 4.2 19
% yoy 17.5 19.7 13.8 11.1 15.9 16.3 24.1 41.1 17.0 42.6 29.9 29.9 27.3 31.1
9MCY11 2,083 809 38.8 197 9.4 323 15.5 393 18.9 1,722 362 17.4 2.6 34 118 443 443 21.3 147 33.2 296 14.2 4.2
9MCY10 1,798 687 38.2 169 9.4 281 15.6 345 19.2 1,481 318 17.7 1.9 29 85 372 372 20.7 125 33.7 246 13.7 4.2 59
% chg 15.9 17.8 16.5 15.1 14.0 16.3 14.0 34.9 17.6 38.3 19.1 19.1 17.2 20.1
31.1
70
20.1
Healthy volume growth from its core brands: GSK Consumer posted impressive top-line growth of 17.5% yoy to `720cr (`613cr), led by 10% volume growth and ~8% value growth. During the quarter, the MFD category reported modest growth, with volumes of Horlicks and Boost growing by double digits. Horlicks grew by 10% yoy in volumes and Boost grew by 6% yoy in volumes. Value growth in Horlicks and Boost was 18% and 11%, respectively. The biscuits category grew by ~35% yoy. Management indicated that it has scaled down the sales of Nutribar it is now available in modern trade outlets only. Foodles reported subdued growth during the quarter on account of distribution-led problems.
November 8, 2011
30.0 25.0 20.0 15.0 10.0 5.0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 (yoy %) (yoy %)
Top-line (LHS)
Source: Company, Angel Research
4.0 2.0 -
Volume (LHS)
Source: Company, Angel Research
Value (RHS)
Lower operating expenses aid in OPM expansion: GSK Consumer registered gross margin expansion of 70bp yoy during the quarter. On the operating front, the company reported an 87bp yoy expansion, aided by reduction in ad spends (down 97bp yoy), staff costs and other expenses. Earnings growth aided by higher other income: Earnings for the quarter registered 31.1% yoy growth to `103cr (`79cr) on account of increased other income to `48cr and a 65bp yoy decline in tax rate.
November 8, 2011
(` cr)
(%)
70 50 30 10
(yoy %)
40.0 30.0 20.0 10.0 15.9 8.8 15.1 16.4 15.5 20.5 11.5 15.1 16.4
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
PAT (LHS)
OPM
Gross margin
Investment rationale
Anchor brands to perform well coupled with new launches: We expect GSK Consumer to perform well with its anchor brands Horlicks and Boost. Also, with the launch of innovative and premium products, the company tends to maintain its margins and market share. In the MFD category, we expect Horlicks to witness double-digit volume growth by CY2012E. Similarly, Boost is also expected to post double-digit volume growth. Though the company has pricing power, innovative launches such as small pack sizes will help the company garner a market share in rural markets and penetrate new areas. Earnings growth and margins to remain stable at ~17%: Over CY2011-12, we expect GSK Consumers margin to remain stable at ~17% due to intensive competition in the business environment, leading to a considerable expenditure in advertisements and the surmounting high raw-material inflation. We expect the companys earnings to witness a 17% CAGR over CY2010-12E.
3Q11
November 8, 2011
November 8, 2011
Reco
Neutral Neutral Neutral Buy Neutral Accumulate Neutral Neutral Neutral Neutral
Mcap (` cr)
30,412 5,638 14,532 17,320 10,766 13,421 83,003 162,539 9,127 42,092
CMP (`)
3,171 472 1,069 100 2,563 415 380 210 149 4,366
TP (`)
115 457 -
Upside (%)
16 10 -
Dec-10
Apr-11
Mar-11
Aug-11
Jul-11
Feb-11
Oct-11
Nov-10
May-11
Nov-11
Sep-11
Jan-11
Jun-11
Dec-05
Dec-07
Dec-09
Apr-05
Apr-07
Apr-09
Aug-06
Aug-08
Sensex
GSKCH
15x
20x
25x
30x
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Oct-11
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Dec-06
Dec-07
Dec-08
Dec-09
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Dec-10
Aug-10
Apr-11
Aug-11
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
November 8, 2011
November 8, 2011
Balance Sheet
Y/E Dec (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc Exp Total Assets 457 298 160 17 66 298 371 94 55 222 249 122 664 473 329 144 16 66 853 471 62 320 312 541 767 492 364 128 38 66 1,173 820 56 297 511 662 894 533 397 136 108 66 1,423 976 84 363 800 623 933 707 437 270 57 66 1,508 985 103 420 753 755 1,148 858 486 372 69 66 1,753 1,147 121 486 861 892 1,399 42 604 646 17 664 42 719 761 7 767 42 863 905 (11) 894 42 918 960 (27) 933 42 1,133 1,175 (27) 1,148 42 1,384 1,426 (27) 1,399 CY07 CY08 CY09 CY10E CY11E CY12E
286 42 (58) (31) 96 (10) 133 29 298 269 31 (7) (24) 377 94 471
354 42 211 (20) 124 (5) 458 41 (41) 89 (20) (68) 349 471 820
334 40 169 (41) 152 4 354 111 (111) (0.00) 245 (41) (204) 39 820 859
523 40 (122) (32) 175 (2) 232 123 (123) 133 (32) (101) 8 976 985
622 49 23 (39) 208 3 449 162 (162) 162 (39) (124) 163 985 1,147
November 8, 2011
Key Ratios
Y/E Dec Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days) 2.8 56 8 62 8 3.3 66 10 59 17 4.3 51 6 71 (30) 3.9 49 8 74 (56) 3.9 49 8 74 (31) 3.7 49 7 72 (29) 29.5 42.1 27.4 27.3 45.7 27.0 32.3 27.9 36.9 32.2 39.1 447.4 32.6 38.3 156.1 31.8 94.2 1,418.7 38.7 38.7 49.0 12.0 153.7 45.2 45.2 55.1 15.0 180.9 54.7 54.7 65.3 18.0 215.2 71.2 71.2 80.7 50.0 228.3 82.7 82.7 92.3 27.0 279.4 98.3 98.3 109.9 33.0 339.1 66.3 52.3 16.7 0.5 8.4 47.6 16.1 56.8 46.5 14.2 0.6 6.7 43.4 13.4 46.8 39.2 11.9 0.7 5.2 32.1 11.1 36.0 31.7 11.2 2.0 4.3 26.0 10.5 31.0 27.8 9.2 1.1 3.6 21.9 8.5 26.1 23.3 7.6 1.3 3.0 18.0 6.9 CY07 CY08 CY09 CY10E CY11E CY12E
November 8, 2011
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
GSKCHL No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) :
November 8, 2011
10