For 3QFY2016, GlaxoSmithKline Pharmaceuticals (GSK Pharma) posted a
disappointing operating performance. For the quarter, the company posted sales
of Rs729cr (V/s Rs730cr expected), a growth of 12.8% yoy. On the operating front,
the company posted a gross margin of 53.1% V/s 55.6% in the corresponding
period of the previous year. The OPM came in at 14.1% V/s 17.0% during the
corresponding period of previous year, mainly owing to lower gross margin on a
yoy basis. This was against our expectations of 18.1%. Thus, the reported net
profit came in at Rs82cr V/s Rs55cr in the corresponding period of last year.
However, the Adj. net profit came in at Rs80cr V/s Rs45cr in 3QFY2015, a yoy
growth of 76.4%. We remain Neutral on the stock.
Results below our expectations: For 3QFY2016, the company posted a
disappointing operating performance. For the quarter, the company posted sales
of Rs729cr (V/s Rs730cr expected), a growth of 12.8% yoy. On the operating front,
the company posted a gross margin of 53.1% V/s 55.6% in the corresponding
period of the previous year. The OPM came in at 14.1% V/s 17.0% during the
corresponding period of previous year, mainly owing to lower gross margin on a
yoy basis. This was against our expectations of 18.1%. Thus, the reported net
profit came in at Rs82cr V/s Rs55cr in the corresponding period of last year.
However, the Adj. net profit came in at Rs80cr V/s Rs45cr in 3QFY2015, a yoy
growth of 76.4%. We remain Neutral on the stock.
Outlook and valuation: The company has a strong balance sheet with cash of
~Rs2,000cr, which could be used for future acquisitions or higher dividend
payouts. On the operational front, we expect the company’s net sales to post a
CAGR of 9.8% to Rs3,158cr and EPS to register a mere CAGR of 6.6% to Rs68.3
over FY2015–17E. We remain Neutral on the stock.
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