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GlaxoSmithKline Consumer (Mkt Cap USD2b, CMP Rs.2,103, Buy)

Glaxo Smithkline (GSK Consumer) posted CY10 volume growth of 14% in the MFD segment. Horlicks volumes grew 13% and Boost grew 18%.

The management indicated that it aimed to increase the contribution of the non-MFD segment to overall sales from 5% currently to 15% over the next 3 years.

EBITDA margins are likely to be sustained at current levels despite near term sales mix deterioration due to margin improvement in the MFD segment.

Raw material inflation in CY10 was 6.5%, led by an increase in the prices of milk, (up ~16%), wheat (~3%) and sugar (~6%).

GSK announced a dividend of Rs.50 for CY10. However, the management indicated likelihood of higher dividend, if cash generation continued at a higher level.

We reiterate our positive stance on GSK Consumer as the management commentary instills confidence of sustained volume growth and margins. We are upgrading estimates by 3-4% for CY11 and CY12 to factor in cost control and higher financial other income. Our estimate is revised to Rs.87.1 for CY11 (Rs.84.3 earlier) and Rs.104.8 for CY12 (Rs.102.3 earlier). The stock trades at 24.1x CY11E and 20.1x CY12E. Maintain Buy.