For 2QFY2016, Glaxo Smithkline Pharma (GSK Pharma) reported a
disappointing set of numbers, due to lower- than-expected sales. Sales came in at
Rs692cr (V/s Rs720cr expected), a dip of 6.4% yoy, which was due to supply
constraints. On the operating front, the company’s gross margins for the quarter
came in at 56.4% V/s 53.5% in 2QFY2015. In spite of the rise in gross margins,
the OPM came in lower at 17.4% V/s an expected 20.2% and V/s 21.3% in
2QFY2015, mainly owing to lower sales during the quarter. Thus, the reported
net profit came in at Rs96cr V/s Rs129cr in 2QFY2015. However, the Adj. net profit
came in at Rs101cr V/s Rs129cr in 2QFY2015, a yoy dip of 21.4%. We remain
Neutral on the stock.
Results below our expectations: For 2QFY2016, GSK Pharma reported a
disappointing set of numbers, due to lower- than-expected sales. Sales came in at
Rs692cr (V/s Rs720cr expected), a dip of 6.4% yoy, which was due to supply
constraints. On the operating front, the company’s gross margins for the quarter
came in at 56.4% V/s 53.5% in 2QFY2015. In spite of the rise in gross margins,
the OPM came in lower at 17.4% V/s an expected 20.2% and V/s 21.3% in
2QFY2015, mainly owing to lower sales during the quarter. Thus, the reported
net profit came in at Rs96cr V/s `129cr in 2QFY2015. However, the Adj. net profit
came in at Rs101cr V/s Rs129cr in 2QFY2015, a yoy dip of 21.4%.
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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