gsk consumer, 2q cy 2013

7/27/2019 GSK Consumer, 2Q CY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly Result

(` cr) 2QCY13 2QCY12 % yoy 1QCY13 % qoq

Revenue 853 730 16.9 940 (9.3)

EBITDA 119 111 7.2 171 (30.5)

OPM (%) 13.9 15.2 (126)bp 18.2 (426)bp

PAT 120 107 12.5 156 (23.3)

Source: Company, Angel Research

For 2QCY2013 GlaxoSmithkline Consumer Healthcare (GSK Consumer) posted a

12.5% yoy growth in net profit to ` 120cr, aided by a reasonably healthy

performance on the operating front.

Key highlights of the quarter: For 2QCY2013 GSK Consumer’s top-line rose by

16.9% yoy to ` 853cr aided by a strong ~10% pricing growth and a decent 7%

volume growth. However, the OPM fell by 126bp yoy to 13.9% due to increase in

employee costs, advertising and other expenses. Higher employee costs were due

to certain one-off items arising out of change in actuarial assumptions related to

wage settlement. Other expenses too were higher on a yoy basis due to pre-

operative expenses related to new production units. Other income rose by 32.7%

yoy to `

76cr. The bottom-line rose by 12.5% yoy to `

120cr.

Outlook and valuation: We expect GSK Consumer’s malted food drinks (MFD)

division to continue to post double digit growth, aided by its efforts to strengthen

distribution network. The company’s top-line and bottom-line are expected to

grow at a CAGR of 17.6% and 19.6% respectively over CY2012-14E. At the

current market price, the stock is trading at 28.4x CY2014E EPS of ` 149. We

continue to remain Neutral on the stock.

Key Financials

Y/E Dec. (` cr) CY2011 CY2012 CY2013E CY2014E

Net Sales 2,686 3,079 3,617 4,259% chg 16.5 14.7 17.5 17.7

Net Profit 362 437 514 625

% chg 20.8 20.7 17.7 21.6

EBITDA (%) 15.8 15.1 16.1 16.4

EPS (`) 86.0 103.9 122.2 148.7

P/E (x) 49.0 40.6 34.5 28.4

P/BV (x) 15.5 13.0 10.7 8.6

RoE (%) 33.8 34.9 34.1 33.7

RoCE (%) 37.0 35.4 36.5 35.5

EV/Sales (x) 6.2 5.3 4.4 3.7

EV/EBITDA (x) 39.2 35.0 27.7 22.4

Source: Company, Angel Research; Note: CMP as of August 14, 2013

NEUTRALCMP ` 4,217

Target Price -

Investment Period -

Stock Info

Sector

Net Debt ( ` cr) (1,430)

Bloomberg Code SKB@IN

Shareholding Pattern (%)

Promoters 72.5

MF / Banks / Indian Fls 0.5

FII / NRIs / OCBs 12.0

Indian Public / Others 15.0

Abs. (%) 3m 1yr 3yr

Sensex (1.8) 9.2 6.6

SKB (0.4) 51.5 133.8

FMCG

Market Cap ( ` cr) 17,735

Beta 0.4

52 Week High / Low 6020/2770

Avg. Daily Volume 4,060

Face Value ( ` ) 10

BSE Sensex 19,368

Nifty 5,742

Reuters Code GLSM.BO

V Srinivasan

022-39357800 Ext: 6831

[email protected]

GSK Consumer

Performance Highlights

2QCY2013 Result Update | FMCG

August 16, 2013



GSK Consumer | 2QCY2013 Result Update

August 16, 2013 2

Exhibit 1: Quarterly Performance

Y/E Dec (` cr) 2QCY13 2QCY12 % yoy 1QCY13 % qoq 1HCY2013 1HCY2012 % chg

Net Sales 853 730 16.9 940 (9.3) 1,793 1,543 16.2

Consumption of RM 299 270 10.5 356 (16.1) 655 601 9.0(% of Sales) 35.0 37.0 37.9 36.5 38.9

Staff Costs 104 79 32.0 89 17.4 193 145 33.2

(% of Sales) 12.2 10.8 9.5 10.8 9.4

Advertising 138 116 18.5 159 (13.6) 297 225 31.8

(% of Sales) 16.1 15.9 16.9 16.6 14.6

Other Expenses 194 154 26.1 165 17.4 359 299 19.8

(% of Sales) 22.7 21.0 17.5 20.0 19.4

Total Expenditure 734 619 18.6 769 (4.5) 1,503 1,270 18.3

Operating Profit 119 111 7.2 171 (30.5) 289 272 6.3

OPM 13.9 15.2 18.2 16.1 17.7

Interest 0.2 0.8 (80.7) 0.1 14.3 0.3 2.0 (85.1)

Depreciation & Ammortisation 12 9 42.7 11 14.0 23 20 11.9

Other Income 76 57 32.7 68 11.7 144 105 36.9

PBT (excl. Extraordinary Items) 182 159 14.9 228 (20.0) 410 355 15.5

Extraordinary Income/(Expense) - - - - -

PBT (incl. Extraordinary Items) 182 159 14.9 228 (20.0) 410 355 15.5

(% of Sales) 21.4 21.7 24.2 22.9 23.0

Provision for Taxation 62 52 19.9 71 (12.9) 134 116 14.9

(% of PBT) 34.2 32.8 31.4 32.6 32.8

Reported PAT 120 107 12.5 156 (23.3) 276 239 15.8

PATM 14.1 14.6 16.6 15.4 15.5

Equity shares (cr) 4.2 4.2 4.2 4.2 4.2

EPS (`) 28.5 25.3 12.5 37.2 (23.4) 66 57 15.8


Exhibit 2: Actual vs Angel estimates

(` cr) Actual Angel Est % chg

Revenue 853 857 (0.5)

EBITDA 119 154 (23.1)

OPM (%) 13.9 18.0 (409)

PAT 120 135 (10.9)


Healthy top-line growth of 16.9% yoy

GSK Consumer posted a healthy top-line growth of 16.9% yoy to ` 853cr ( ` 730cr

in 2QCY2012), led by a strong ~10% pricing growth and a decent 7% volume

growth. Horlicks posted a growth of 19% yoy with volume and value growth of

~9% and ~10% respectively. Boost posted a growth of 15% yoy with volume and

value growth of ~5% and ~10% respectively. The Packaged foods division grew

by 19% yoy.




August 16, 2013 3

Exhibit 3: Top-line growth at 16.9% yoy


Exhibit 4: Operational performance


OPM down 126bp yoy to 13.9%

Gross margin rose by 203bp yoy to 65% due to better realization. OPM fell by

126bp yoy to 13.9% due to increase in employee costs, advertising and otherexpenses. Higher employee costs were due to certain one-off items arising out of

change in actuarial assumptions related to wage settlement. Other expenses too

were higher on a yoy basis due to pre-operative expenses related to new

production units. Other income rose by 32.7% yoy to ` 76cr. The bottom-line rose

by 12.5% yoy to ` 120cr.

6 5 3

7 2 0

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( y o y % )

( `

c r )

Top-line (LHS) yoy growth (RHS)

1 6

1 0

1 1

7 7 6 8 8 7

5.0

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8 88

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( y o y % )

( % )

Volume Growth(LHS) Value Growth (RHS)




August 16, 2013 4

Exhibit 5: Gross margin and OPM


Exhibit 6: PAT grows by 12.5% yoy


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 is

likely to maintain its margin and market share. In the malted food drinks

(MFD) category, we expect Horlicks and Boost to maintain their double digit

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.

Outlook and valuation

We expect GSK Consumer’s MFD division to continue to post double digit growth,

aided by its efforts to strengthen distribution network. The company’s top-line and

bottom-line are expected to grow at a CAGR of 17.6% and 19.6% respectively

over CY2012-14E. At the current market price, the stock is trading at 28.4x

CY2014E EPS of ` 149. We continue to remain Neutral on the stock.

Exhibit 7: One-year forward P/E chart

Source: Company, Angel Research, Note: Blue line indicates 5-year average

15.1 16.4

10.2

19.915.2 17.0

7.2

18.213.9

59.462.1 64.0

59.463.0 62.5 66.1 62.1 65

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( % )

OPM Gross margin

8 2

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5 9

1 3 2

1 0 7

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PAT (LHS) yoy growth (RHS)

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August 16, 2013 5

Exhibit 8: Peer valuation

Company Reco. Mcap CMP TP Upside P/E (x) EV/Sales (x) RoE (%) CAGR #

(` cr) (`) (`) (%) FY14E FY15E FY14E FY15E FY14E FY15E Sales PAT

Asian Paints Neutral41,658 434 - - 31.3 27.1 3.2 2.7 35.6 32.7 15.4 17.5

Britannia Neutral 8,989 752 - - 35.4 29.5 1.3 1.1 35.7 34.6 16.1 15.3

Colgate Neutral 18,396 1,353 - - 32.8 28.0 5.0 4.3 100.0 91.0 15.7 15.0

Dabur India Neutral 29,848 172 - - 32.1 27.3 4.2 3.6 39.2 36.7 16.2 19.5

Godrej Con Neutral 30,350 892 - - 35.5 30.0 4.0 3.4 24.8 24.2 18.8 18.9

GSK Con* Neutral 17,735 4,217 - - 34.5 28.4 4.4 3.7 34.1 33.7 17.6 19.6

HUL Neutral 133,156 616 - - 36.9 33.9 4.5 4.0 113.4 87.0 12.6 11.1

ITC Neutral 264,355 335 - - 29.7 25.1 7.3 6.1 36.1 34.9 16.2 19.2

Marico Neutral 13,762 213 - - 29.4 24.6 2.6 2.2 21.4 21.0 14.8 24.0

Nestle* Neutral 49,346 5,118 - - 41.5 34.2 5.2 4.4 56.4 50.3 14.4 14.5

TGBL Neutral 9,112 147 - - 19.5 17.7 1.1 1.0 9.3 9.5 11.0 13.2

Source: Company, Angel Research; Note: #Denotes CAGR for FY2013-15E;*December year ending

Company Background

GSK Consumer is one of the largest players in the health foods industry in India

and a clear market leader in the hot malted beverages category. The company's

flagship product - Horlicks is a highly popular brand with a rich heritage, ranking

no. 1 in the malted beverages category with an ~50% market share. The company

also sells other malted beverage brands, such as Boost, Maltova and Viva. The

company is also present in the biscuits segment through its Horlicks biscuits range.

In addition, the company promotes and distributes a number of OTC products

from its global parent, which include prominent household names like Eno, Crocin

and Iodex. GSK Consumer has a strong marketing and distribution network in

India, comprising of over 1,800 wholesalers and 400,000 retail outlets.




August 16, 2013 6

Profit & Loss Statement

Y/E Dec (` cr) CY09 CY10 CY11 CY12 CY13E CY14E

Total operating income 1,922 2,306 2,686 3,084 3,617 4,259

% chg 24.6 20.0 16.5 14.8 17.3 17.7

Total Expenditure 1,611 1,818 2,261 2,614 3,036 3,559

Cost of Materials 714 865 1,023 1,152 1,356 1,555

Advertising Exp 302 371 437 493 588 696

Personnel 201 230 258 301 351 426

Others 394 352 542 668 742 882

EBITDA 311 489 425 470 581 700

% chg 30.8 57.3 (13.0) 51.3 23.7 20.5

(% of Net Sales) 16.2 21.2 15.8 15.2 16.1 16.4

Depreciation & Amortisation 42 40 46 36 46 52

EBIT 269 449 379 434 535 649

% chg 37.3 67.1 (15.6) 14.5 41.3 21.2

(% of Net Sales) 14.0 19.5 14.1 14.1 14.8 15.2

Interest & other Charges 4 3 3 2 4 4

Other Income 89 - 165 222 247 302

(% of PBT) 25.2 0.0 30.5 34.0 31.8 31.9

Share in profit of Associates - - - - 2.00 3.00

Recurring PBT 354 446 540 653 779 947

% chg 23.9 26.1 21.1 20.9 19.2 21.6

Prior Period & Extra. Exp./(Inc.) (2.61) (0.29) 6.65 - - -

PBT (reported) 356 447 534 653 779 947

Tax 124 152 178 212 265 322(% of PBT) 35.0 34.1 33.0 32.4 34.0 34.0

PAT (reported) 233 294 355 441 514 625

Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

PAT after MI (reported) 233 294 355 441 514 625

ADJ. PAT 230 294 362 441 514 625

% chg 21.2 27.7 23.1 22.0 42.0 21.6

(% of Net Sales) 12.0 12.7 13.5 14.3 14.2 14.7

Basic EPS (`) 54.7 71.2 86.0 103.9 122.2 148.7

Fully Diluted EPS (̀ ) 54.7 71.2 86.0 103.9 122.2 148.7

% chg 21.2 30.2 20.8 20.7 17.7 72.8




August 16, 2013 7

Balance Sheet


SOURCES OF FUNDS

Equity Share Capital 42 42 42 42 42 42Reserves& Surplus 863 918 1,102 1,319 1,610 2,013

Shareholders Funds 905 960 1,144 1,361 1,652 2,056

Total Loans - - - - - -

Deferred Tax Liability (11) (27) (40) (62) (40) (40)

Long term Provisions 51 77 77 77

Other long term liablities 10 11 11 11

Total Liabilities 894 933 1,165 1,388 1,700 2,104

APPLICATION OF FUNDS

Gross Block 492 533 570 590 790 890

Less: Acc. Depreciation 364 397 370 396 442 493

Net Block 128 136 201 194 348 396

Capital Work-in-Progress 38 108 149 197 97 97

Goodwill 66 66 0 0 0 0

Investments - - - - - -

Long term loans and adv. 50 45 45 45

Current Assets 1,173 1,423 1,642 2,057 2,350 2,810

Cash 820 976 1,080 1,464 1,676 2,029

Loans & Advances 56 84 93 111 102 108

Other 297 363 469 482 571 673

Current liabilities 511 800 878 1,105 1,139 1,244

Net Current Assets 662 623 765 952 1,210 1,566

Mis. Exp. not written off - - - - - -

Total Assets 894 933 1,165 1,388 1,700 2,104




August 16, 2013 8

Cash Flow Statement


Profit before tax 354 452 540 649 779 947

Depreciation 42 40 46 36 46 52Change in Working Capital 211 169 (200) 187 (26) (2)

Interest/ Dividend(Net) (20) (41) (67) (70) (70) (94)

Direct taxes paid 124 152 178 212 265 322

Others (5) 4 135 13 0 0

Cash Flow from Operations 458 472 276 603 464 581

Inc./ (Dec.) in Fixed Assets 41 111 79 68 100 100

Inc./ (Dec.) in Investments - - - - - -

Cash Flow from Investing (41) (111) (79) (68) (100) (100)

Issue of Equity - (0.00) - - - -

Inc./(Dec.) in loans - - 10 2 - -

Dividend Paid (Incl. Tax) 89 245 171 222 221 221

Interest / Dividend (Net) (20) (41) (67) (70) (70) (94)

Cash Flow from Financing (68) (204) (94) (151) (152) (127)

Inc./(Dec.) in Cash 349 156 104 385 212 353

Opening Cash balances 471 820 976 1,080 1,464 1,676

Closing Cash balances 820 976 1,080 1,464 1,676 2,029




August 16, 2013 9

Key Ratios

Y/E Dec CY09 CY10 CY11 CY12 CY13E CY14E

Valuation Ratio (x)

P/E (on FDEPS) 77.1 59.2 49.0 40.6 34.5 28.4P/CEPS 64.5 52.2 44.2 37.5 31.7 26.2

P/BV 19.6 18.5 15.5 13.0 10.7 8.6

Dividend yield (%) 0.4 1.2 0.8 1.1 1.1 1.1

EV/Sales 8.8 7.3 6.2 5.3 4.4 3.7

EV/EBITDA 54.5 44.5 39.2 35.0 27.7 22.4

EV / Total Assets 18.9 18.0 15.0 12.4 9.9 7.8

Per Share Data (`)EPS (Basic) 54.7 71.2 86.0 103.9 122.2 148.7

EPS (fully diluted) 54.7 71.2 86.0 103.9 122.2 148.7

Cash EPS 65.3 80.7 95.4 112.4 133.1 160.9

DPS 18.0 50.0 35.0 45.0 45.0 45.0

Book Value 215.2 228.3 272.1 323.6 392.8 488.8

Returns (%)

RoCE 32.3 36.9 37.0 35.4 36.5 35.5

Angel RoIC (Pre-tax) 94.2 1,418.7 - - - -

RoE 27.9 32.2 33.8 34.9 34.1 33.7

Turnover ratios (x)

Asset Turnover 4.3 3.9 4.7 5.2 3.8 3.8

Inventory / Sales (days) 51 49 50 49 49 49

Receivables (days) 6 8 13 10 9 9

Payables (days) 71 74 89 98 91 86

Net working capital (days) (30) (56) (43) (65) (50) (43)




August 16, 2013 10

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement GSK Consumer

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

gsk consumer, 2q cy 2013

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