Analyst Corner: Maintain ‘add’ on GSK Pharma with TP of Rs 1,613

Lower employee and S,G&A expenses cushioned the drop in Ebitda margin to 140 bps y-o-y.

Inline performance: Revenue grew 4.9% y-o-y during the quarter as acute therapies witnessed recovery with falling Covid-19 cases. Although, recent surge in cases may have some near term pressures we expect recovery in the growth to continue with traction in key brands supported by healthy growth in recently launched products (Fluarix Tetra and Menveo) especially with the ongoing vaccination. Gross margin dropped 540 bps y-o-y on a very high base of last year but it was largely stable sequentially. Lower employee and S,G&A expenses cushioned the drop in Ebitda margin to 140 bps y-o-y.

Company has impaired Vemgal by Rs 1.19 billion to reflect the estimated realisable value of Rs 1.8 billion at which it is being sold to Hetero. Hence, reported PAT declined 89.6% y-o-y. Adjusting for it PAT fell 20.0% y-o-y to Rs 1.0 billion.

Key products performance: As per AIOCD data, GSKP has reported a flattish y-o-y performance. T-Bact, Betnovate N and Betnovate C have reported healthy y-o-y growth of 30.5%, 41.3% and 34.9%, respectively for the quarter. However, Augmentin, Synflorix, Calpol and Betnesol have reported a y-o-y decline of 16.9%, 25.6%, 16.3% and 3.5%, respectively. Infanrix Hexa continues its strong momentum with 10.1% y-o-y growth. Fluarix Tetra and Menveo are tracking well with revenue of Rs 19 million and Rs 61 million, respectively during the quarter.

Outlook: While FY21 performance would optically appear muted, its due to Zinteac (ranitidine) sales in the base. However, we expect FY22 to report a strong growth both on revenue and earnings front. We expect 10.1% revenue and 24.2% PAT CAGR over FY21-FY23E driven by growth in power brands, traction in newly launched products and recovery in key therapies like vaccines, respiratory and VMN. Minimal capex requirement would aid cashflow generation of ~Rs16bn over the next two years.

Valuations and risks: We largely maintain our revenue estimates but raise our EPS estimates by 2-3% for FY22E-FY23E to factor in higher other income. Maintain ADD with a revised target price of Rs1,613/share based on 40xFY23E earnings (earlier: Rs1,575/share). Key downside risks: addition of key drugs in NLEM, product concentration.