3QFY2017 Result Update | Pharmaceutical
February 15, 2017
GlaxoSmithKline Pharmaceuticals
NEUTRAL
CMP
`2,683
Performance Highlights
Target Price
-
Y/E Mar (` cr)
3QFY2017 2QFY2017
% chg (QoQ) 3QFY2016
% chg (YoY)
Investment Period
-
Net Sales
689
783
(12.0)
730
(5.6)
Stock Info
Other income
38
34
9.6
47
(19.5)
Sector
Pharmaceutical
Gross profit
332
421
(21.2)
390
(14.9)
Market Cap (`
cr)
22,726
Operating profit
35
124
(71.9)
84
(58.6)
Net Debt (` cr)
(1,055)
Adj. PAT
41
98
(58.3)
81
(49.6)
Beta
0.33
Source: Company, Angel Research
52 Week High / Low
3,850/2,600
Avg. Daily Volume
1,835
For 3QFY2017 Glaxo Pharmaceuticals (GSK) posted results lower than
Face Value (`)
10
expectations on all fronts. In sales, the company posted sales of `689cr v/s
BSE Sensex
28,339
`700cr expected, a yoy de-growth of 5.6%. On EBITDA front, the company
Nifty
8,792
posted EBITDA of
5.1% (v/s
9.1% expected) v/s
11.6% in 3QFY2016.
Reuters Code
GLAX.BO
Consequently, Adj. PAT came in at `40.8cr (v/s `78.4cr expected) v/s `81cr in
Bloomberg Code
[email protected]
3QFY2016, de-growth of 49.6% yoy. We maintain our Neutral rating.
Results below expectations: Glaxo Pharmaceuticals, posted results lower than
Shareholding Pattern (%)
expected on all fronts. In sales, the company posted sales of `689cr v/s `700cr
Promoters
75.0
expected, a yoy de-growth of 5.6%. On EBITDA front, the company posted
MF / Banks / Indian Fls
10.6
EBITDA of 5.1% (v/s 9.1% expected) v/s 11.6% in 3QFY2016. Consequently,
FII / NRIs / OCBs
2.2
Adj. PAT came in at `40.8cr (v/s `78.4cr expected) v/s `81cr in 3QFY2016,
Indian Public / Others
12.2
de-growth of 49.6% yoy. The net profit came in lower than expected OPM’s,
which was eroded on the back of lower sales and pricing pressures.
Outlook and valuation: Company has a strong balance sheet with cash of
Abs. (%)
3m 1yr
3yr
~`2,000cr, which could be used for future acquisitions or higher dividend pay
Sensex
5.7
23.3
39.1
outs. On the operational front, we expect the company’s net sales to post a
Glaxo
1.7
(16.2)
(10.8)
CAGR of 9.6% to `3,290cr and EPS to register a mere CAGR of 16.9% to `60.3
over FY2016-18E. We remain Neutral on the stock.
3-year price chart
Key financials (Consolidated)
4,000
Y/E Mar (` cr)
FY2015*
FY2016
FY2017E
FY2018E
3,500
Net sales
3,272
2,741
2,800
3,290
3,000
% chg
28.9
(16.2)
2.1
17.5
2,500
Net profit
509
374
273
511
2,000
% chg
9.8
(26.5)
(27.2)
87.5
1,500
EPS (`)
60.1
44.2
32.2
60.3
EBITDA (%)
17.8
16.5
10.2
20.6
P/E (x)
44.6
60.7
83.4
44.5
Source: Company, Angel Research
RoE (%)
26.7
21.2
17.2
34.5
RoCE (%)
26.7
21.7
13.9
37.5
P/BV (x)
12.4
13.4
15.4
15.3
EV/Sales (x)
6.4
7.8
7.8
6.7
Sarabjit Kour Nangra
+91 22 39357800 Ext: 6806
EV/EBITDA (x)
35.8
47.3
76.4
32.4
[email protected]
Source: Company, Angel Research; Note: CMP as of February 14, 2017; * 15 months numbers
Please refer to important disclosures at the end of this report
1
Glaxo Pharma | 3QFY2017 Result Update
Exhibit 1: 3QFY2017 - Standalone performance
Y/E March (` cr)
3QFY17
2QFY17
% chg (QoQ)
3QFY16
% chg (YoY)
9MFY17
9MFY16
% chg
Net Sales
689
783
(12.0)
730
(5.6)
2,157
2,065
4.5
Other income
38
34
9.6
47
(19.5)
117
119
(1.5)
Total Income
727
817
(11.0)
777
(6.5)
2,275
2,184
4.2
Gross profit
332
421
(21.2)
390
(14.9)
1,125
1,119
0.5
Gross margin
48.2
53.8
53.4
52.1
54.2
Operating profit
35
124
(71.9)
84
(58.6)
230
327
(29.7)
Operating margin (%)
5.1
15.9
11.6
10.6
15.8
Interest
0
0
-
0
-
0
0
-
Depreciation & Amortization
7
7
0.5
8
(15.4)
19
18
3.1
PBT & Exceptional Items
66
152
(56.6)
123
(46.5)
328
428
(23.3)
Less : Exceptional Items
12
2
-
(2)
-
13
(14)
Profit before tax
78
154
(49.2)
121
(35.6)
341
415
(17.7)
Provision for taxation
25
54
(52.9)
45
(43.4)
117
145
(19.1)
Reported PAT
53
99
(46.4)
79
(32.9)
224
268
(16.5)
Adj. Net profit
41
98
(58.3)
81
(49.6)
211
277
(23.9)
EPS (`)
4.8
11.5
9.6
24.9
32.7
Source: Company, Angel Research,
Exhibit 2: 3QFY2017 - Actual Vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net sales
689
700
(1.5)
Other income
38
47
(19.6)
Operating profit
35
63
(44.8)
Tax
25
25
0.0
Adj. net profit
41
78
(47.9)
Source: Company, Angel Research
Revenue de-grew by 5.6%
In sales, the company posted sales of `689cr v/s `700cr expected, a yoy de-
growth of 5.6%. The sales during the quarter were impacted on the back of the
mandatory price cuts by 5% in the current quarter. The estimated impact of
demonetization adversely impacted sales further by
5%, mainly in acute &
consumer brands.
February 15, 2017
2
Glaxo Pharma | 3QFY2017 Result Update
Exhibit 3: Sales trend
800
783
40.0
729
35.0
686
685
689
30.0
700
25.0
20.0
600
15.0
10.0
5.0
500
0.0
(5.0)
400
(10.0)
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Sales
Growth (YoY)
Source: Company, Angel Research
OPM lower the expected
The company posted OPM of 5.1% (v/s 9.1% expected) v/s 11.6% in 3QFY2016.
On the operating front, the gross margin came in at 48.2% v/s 53.4% in
3QFY2016. This was mainly on back of pricing pressures in the domestic
formulation market.
Exhibit 4: OPM trend
25.0
17.8
20.0
15.9
15.0
11.6
10.2
10.0
5.0
5.1
0.0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Net profit lower than estimated
Consequently, Adj. PAT came in at `40.8cr (v/s `78.4cr expected) v/s `81.0cr in
3QFY2016, de-growth of 49.6% yoy. The net profit was lower than expected, on
back of OPMs, which was eroded on the back of lower sales and pricing
pressures.
February 15, 2017
3
Glaxo Pharma | 3QFY2017 Result Update
Exhibit 5: Adjusted net profit trend
150
95
98
98
100
82
50
41
0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
February 15, 2017
4
Glaxo Pharma | 3QFY2017 Result Update
Recommendation rationale
Renewed focus on the Indian market: GSK is among the top ten players in the
Indian pharmaceutical market, having a market share of ~3.7%. Unlike other
MNCs, the company has been amongst the few which have taken initiatives to
grow their businesses in the Indian market with consistent launch of new products.
Over the last six years, the company has strategically decided to expand its
presence in the Specialty segment. The Specialty segment’s contribution to sales
has reached 23% (as of 2013). Another segment which is strong for the company
is the area of vaccine, where GSK Vaccines has become the leading company in
the private market for vaccines in India. The recently introduced vaccine for
pneumococcal conjugate disease, Synflorix, has become the biggest brand in the
vaccine portfolio of the company in the second year of its launch. The efforts of the
company in raising awareness about vaccines and preventable diseases continue
with increasing fervor. Also, in FY2015, GlaxoSmithKline Plc (Glaxo), London, UK,
entered into three inter-conditional agreements with Novartis AG (Novartis), Basel,
Switzerland. In one such agreement Glaxo agreed to acquire Novartis’ vaccines
business (excluding influenza vaccine) and its manufacturing capabilities and
facilities, and in the second agreement, Glaxo agreed to sell the rights of its
Marketed Oncology Portfolio, related R&D activities and AKT Inhibitors currently in
development to Novartis. Globally, these transactions with Novartis were
completed on March 2, 2015.
On the other hand, its other key segments like mass markets and mass specialty,
which contribute 60% of its sales, de-grew by 12% in CY2013. This was as a result
of a number of products of the company having come under the DPCO 2013
ruling, resulting in reduction in prices of its drugs, which impacted its sales in
CY2013. Along with this, the supply constraints, mainly from local supplies during
FY2015, have been impacting its performance. However, going forward, with
company’s own facilities coming on stream in FY2017, we expect the volatility in
sales to end. Overall, for FY2016-18E, we expect the domestic formulation
business of the company to grow at a CAGR of 10.0%.
Significant capex plans ahead indicate revival in growth: Global pharmaceutical
major Glaxo announced an `864cr investment in India to set up a medicine
manufacturing unit. The new facility will substantially increase the company’s
manufacturing base. The drug maker is proactively building capacity in the country
as it delivers its portfolio of products in areas such as gastroenterology and anti-
inflammatory medicines. When complete, the factory will make pharmaceutical
products for the Indian market at a rate of up to 8bn tablets and 1bn capsules a
year. The facility, expected to be operational by 2017, will include a warehouse,
site infrastructure, and utilities to support the manufacturing and packing of
medicines. It showcases GSK's latest commitment to its manufacturing network in
India where the company has invested `1,017cr over the last decade. The
development is positive and comes after a long lull in terms of investments.
February 15, 2017
5
Glaxo Pharma | 3QFY2017 Result Update
Outlook and valuation
GSK has a strong balance sheet with cash of ~`2,000cr, which could be used for
future acquisitions or higher dividend payouts. The company’s parent company
Glaxo increased stake in it through a voluntary open offer, after which Glaxo holds
75% stake in the Indian subsidiary. The buy-back of shares is a strong indicator
from the Management towards the performance of its listed Indian entity,
especially as it comes after the recent `864cr investment plan announced by the
company to fuel its growth prospects in the Indian pharmaceuticals market. The
said investments are expected to fructify by 2017.
On the operational front, we expect the company’s net sales to post a CAGR of
9.6% to
`3,290cr and EPS to register a CAGR of
16.9% to
`60.3 over
FY2016-18E. At current level, the stock is trading at 83.4x and 44.5x its FY2017E
and FY2018E earnings respectively. We remain Neutral on the stock.
Exhibit 6: Key assumptions
FY2017E
FY2018E
Sales growth (%)
2.1
17.5
Growth in employee expenses (%)
16.2
5.0
Operating margin (%)
10.2
20.6
Capex (` cr)
200
200
Source: Company, Angel Research
Exhibit 7: One-year forward PE
5,500
4,500
3,500
2,500
1,500
500
Price
18x
30x
42x
54x
Source: Company, Angel Research
February 15, 2017
6
Glaxo Pharma | 3QFY2017 Result Update
Exhibit 8: Recommendation summary
Company
Reco
CMP Tgt. price Upside
FY2018E
FY16-18E
FY2018E
(`)
(`)
% PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
558
-
-
18.4
3.0
11.4
(10.8)
27.5
25.3
Aurobindo Pharma Buy
659
877
33.0
13.9
2.7
9.8
18.1
22.5
26.1
Cadila Healthcare
Accum.
366
400
9.4
19.0
3.6
13.3
13.4
22.7
25.7
Cipla
Sell
577
465
(19.4)
23.5
3.2
15.9
14.2
12.2
13.9
Dr Reddy's
Neutral
2,944
-
-
20.6
3.0
11.8
1.7
16.2
15.9
Dishman Pharma
Neutral
216
-
-
19.1
2.5
9.5
13.3
10.3
10.9
GSK Pharma*
Neutral
2,683
-
-
44.5
7.9
32.8
16.9
37.5
34.5
Indoco Remedies
Reduce
266
240
(9.6)
16.6
2.3
10.7
33.2
19.1
20.1
Ipca labs
Buy
523
613
17.2
26.5
2.1
12.0
36.5
8.8
9.4
Lupin
Buy
1,435
1,809
26.0
20.7
4.1
12.7
17.2
24.4
20.9
Sanofi India
Neutral
4,165
-
-
24.2
3.9
17.3
22.2
25.6
28.8
Sun Pharma
Buy
650
847
30.3
18.4
4.6
11.7
26.5
18.9
20.1
Source: Company, Angel Research; Note: * December year ending;
February 15, 2017
7
Glaxo Pharma | 3QFY2017 Result Update
Company Background
GlaxoSmithKline Pharmaceuticals (GSK) is the sixth largest pharmaceutical player
in the Indian market with a market share of ~3.7%. The company’s product
portfolio includes both, prescription medicines and vaccines. GSK sells prescription
medicines across therapeutic areas such as anti-infectives, dermatology,
gynaecology, diabetes, oncology, cardiovascular diseases and respiratory
diseases. A large portion of the company’s revenue comes from the acute
therapeutic portfolio. However, the company is now scouting for opportunities in
high-growth therapeutic areas such as CVS, CNS, diabetes and oncology. Further,
with a strong parentage, the company plans to increase its product portfolio
through patented launches and vaccines. To fructify the same, the company plans
to enhance its manufacturing assets with its parent company investing `864cr in it,
the capacity expansion is expected to fructify in 2017.
February 15, 2017
8
Glaxo Pharma | 3QFY2017 Result Update
Profit & loss statement
Y/E March (` cr)
CY2012
CY2013
FY2015
FY2016
FY2017E FY2018E
Gross sales
2,692
2,589
3,328
2,800
2,872
3,357
Less: Excise duty
71
51
56
59
72
67
Net sales
2,621
2,538
3,272
2,741
2,800
3,290
Other operating income
29
24
32
27
27
27
Total operating income
2,651
2,563
3,305
2,768
2,827
3,317
% chg
11.4
(3.3)
28.9
(16.2)
2.1
17.3
Total expenditure
1,862
2,034
2,690
2,289
2,515
2,614
Net raw materials
1,104
1,164
1,510
1,233
1,456
1,481
Other Mfg costs
94
89
115
99
107
115
Personnel
296
362
493
443
504
530
Other
369
420
572
514
448
488
EBITDA
759
504
582
452
285
676
% chg
2.1
(33.6)
15.5
(22.4)
(36.9)
137.1
(% of Net Sales)
29.0
19.9
17.8
16.5
10.2
20.6
Depreciation& amortization
18
20
25
25
37
45
EBIT
741
484
557
427
248
631
% chg
2.6
(34.7)
15.0
(23.3)
(41.9)
154.4
(% of Net Sales)
28.3
19.1
17.0
15.6
8.9
19.2
Interest & other charges
-
-
-
-
-
-
Other income
175
177
200
125
125
125
(% of PBT)
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
945
685
789
579
401
784
% chg
4.4
(27.5)
15.1
(26.5)
(30.8)
95.6
Extraordinary expense/(Inc.)
101
(26)
33
(3)
-
-
PBT (reported)
844
711
756
582
401
784
Tax
318
230
279
203
128
273
(% of PBT)
37.7
32.3
36.9
34.8
32.0
34.8
PAT (reported)
526
482
477
377
273
511
Add: Share of earnings
-
-
-
-
-
-
of asso.
Less: Minority interest (MI)
-
-
-
-
-
-
Prior period items
-
-
-
-
-
-
Exceptional items
PAT after MI (reported)
526
482
477
377
273
511
ADJ. PAT
657
464
509
374
273
511
% chg
12.0
(29.4)
9.8
(26.5)
(27.2)
87.5
(% of Net Sales)
25.1
18.3
15.6
13.7
9.7
15.5
Basic EPS (`)
78
55
60
44
32
60
Fully diluted EPS (`)
78
55
60
44
32
60
% chg
12.0
(29.4)
9.8
(26.5)
(27.2)
87.5
February 15, 2017
9
Glaxo Pharma | 3QFY2017 Result Update
Balance Sheet
Y/E March (` cr)
CY2012
CY2013
FY2015
FY2016
FY2017E
FY2018E
SOURCES OF FUNDS
Equity share capital
85
85
85
85
85
85
Preference Capital
-
-
-
-
-
-
Reserves& surplus
1,922
1,905
1,744
1,611
1,388
1,404
Shareholders funds
2,007
1,990
1,829
1,696
1,473
1,489
Minority Interest
-
-
-
-
-
-
Total loans
4
4
3
2
2
2
Other long-term liabilities
5
5
5
-
-
-
Long-term provisions
236
242
273
291
291
291
Deferred tax liability
(87)
(92)
(83)
(89)
(89)
(89)
Total liabilities
2,165
2,148
2,026
1,900
1,677
1,693
APPLICATION OF FUNDS
Gross block
274
323
467
725
925
1,125
Less: Acc. depreciation
227
247
272
297
334
379
Net block
47
76
195
428
591
746
Capital work-in-progress
44
44
44
44
44
44
Goodwill
42
42
-
-
-
-
Other non-current assets
17
14
-
-
-
-
Long-term loans and adv.
195
238
307
313
320
376
Investments
55
10
0
0
0
0
Current assets
2,602
2,614
2,587
2,172
1,786
1,777
Cash
2,067
2,042
1,911
1,348
946
790
Loans & advances
134
238
122
123
126
148
Other
401
335
554
701
714
839
Current liabilities
836
889
1,107
1,058
1,064
1,250
Net current assets
1,765
1,725
1,480
1,115
722
527
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
2,165
2,148
2,026
1,900
1,677
1,693
February 15, 2017
10
Glaxo Pharma | 3QFY2017 Result Update
Cash flow statement
Y/E March (` cr)
CY2012 CY2013 FY2015 FY2016 FY2017E FY2018E
Profit before tax and exceptional
844
711
756
582
401
784
Depreciation
18
20
25
25
37
45
(Inc)/Dec in working capital
(25)
15
114
(197)
(9)
39
Direct taxes paid
318
230
279
203
128
273
Cash Flow from Operations
519
517
616
207
300
595
(Inc.)/Dec.in fixed assets
(28)
(49)
(144)
(258)
(200)
(200)
(Inc.)/Dec. in investments
(57)
(45)
(10)
-
-
-
Cash Flow from Investing
(85)
(93)
(154)
(258)
(200)
(200)
Issue of equity
-
-
-
-
-
-
Inc./(Dec.) in loans
-
-
-
-
-
-
Dividend paid (Incl. Tax)
(491)
(495)
(624)
(495)
(495)
(495)
Others
110
47
32
(16)
-
-
Cash Flow from Financing
(381)
(448)
(593)
(512)
(495)
(495)
Inc./(Dec.) in cash
52
(25)
(131)
(563)
(402)
(156)
Opening cash balances
2,014
2,067
2,042
1,911
1,348
946
Closing cash balances
2,067
2,042
1,911
1,348
946
790
February 15, 2017
11
Glaxo Pharma | 3QFY2017 Result Update
Key ratio
Y/E March
CY2012
CY2013
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
34.6
49.0
44.6
60.7
83.4
44.5
P/CEPS
41.8
45.3
45.3
56.6
73.4
40.9
P/BV
11.3
11.4
12.4
13.4
15.4
15.3
Dividend yield (%)
1.9
1.9
1.9
1.9
1.9
1.9
EV/Sales
7.9
8.2
6.4
7.8
7.8
6.7
EV/EBITDA
27.2
41.1
35.8
47.3
76.4
32.4
EV / Total Assets
9.5
9.6
10.3
11.3
13.0
13.0
Per Share Data (`)
EPS (Basic)
77.6
54.8
60.1
44.2
32.2
60.3
EPS (fully diluted)
77.6
54.8
60.1
44.2
32.2
60.3
Cash EPS
64.2
59.2
59.3
47.4
36.5
65.6
DPS
50.0
50.0
50.0
50.0
50.0
50.0
Book Value
236.9
234.9
215.9
200.2
173.9
175.8
Returns (%)
RoCE (Pre-tax)
34.7
22.4
26.7
21.7
13.9
37.5
Angel ROIC (Pre-tax)
-
-
-
-
-
-
RoE
33.3
23.2
26.7
21.2
17.2
34.5
Turnover ratios (x)
Asset Turnover (Gross Block)
9.7
8.6
8.4
4.6
3.4
3.2
Inventory / Sales (days)
43
48
40
59
56
43
Receivables (days)
14
15
11
15
15
12
Payables (days)
58
54
55
77
72
76
WC cycle (ex-cash) (days)
74
79
69
99
107
101
Solvency ratios (x)
Net debt to equity
(1.0)
(1.0)
(1.0)
(0.8)
(0.6)
(0.5)
Net debt to EBITDA
(2.7)
(4.0)
(3.3)
(3.0)
(3.3)
(1.2)
Interest Coverage (EBIT / Int.)
-
-
-
-
-
-
February 15, 2017
12
Glaxo Pharma | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Glaxo Pharma
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 15, 2017
13