glaxo smith kline pharmaceuticals limited
TRANSCRIPT
Firstcall India Equity Advisors Pvt Ltd 1
Glaxo Smith Kline Pharmaceuticals Limited
BUY Target Price: Rs.1790.00
CMP: Rs.1585.00 Market Cap. : Rs.134249.50mn.
Date: November 11, 2009
Key Ratios:
Particulars CY08
(12 m)
CY09E
(12 m)
CY10E
(12 m)
OPM (%) 37 40 40
NPM (%) 27 28 28
ROE (%) 29 26 22
ROCE (%) 39 37 31
P/BV(x) 8.71 6.42 4.98
P/E(x) 29.94 24.42 22.25
EV/EBDITA(x) 21.44 19.10 19.37
Debt Equity ratio 0.37 0.28 0.23
Key Data:
Sector Pharma
Face Value Rs.10.00
52 wk. High/Low Rs. 1636.00/1035.00
Volume (2 wk. Avg.) 3242
BSE Code 500660
SYNOPSIS • GSK Pharma is the largest pharma company in the
domestic pharma market. It is a 51% subsidiary of the
US$ 46bn Glaxo Group, the world's second-largest
pharma company with an R&D warchest of US$ 6.8 bn.
GSK Pharma's product portfolio boasts of some of the
leading brands like Augmentin, Cobadex and Zevit in the
domestic pharma market. It derives its revenues from
pharmaceuticals and fine chemicals.
• The company has emerged as frontrunner for a phased
buy-in to Dr Reddy`s Laboratories.
• The US Food and Drug Administration (USFDA) has
announced that Cervarix from Glaxo Smith Kline (GSK)
was effective in blocking the cervical cancer virus.
• The company is seeking a nod from the government to
market its patented drug for treating the contagious
H1N1 virus, popularly known as swine flu.
• The company is looking at launching its patented
medicine promecta, used in treatment of depleted
platelet count, in India.
• The company has introduced 3 vaccines and 2
pharmaceutical products in 9MCY09. Company has got
very good response for Rotarix and Cervarix vaccine.
• The company’s top line and bottom line is expected to
grow at a CAGR of 11% and 15% over CY07 to CY10E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
Firstcall India Equity Advisors Pvt Ltd 2
Table of Content
Content Page No.
1. Investment Highlights 03
2. Peer Group Comparison 07
3. Key Concerns 07
4. Financials 08
5. Charts & Graph 10
6. Outlook and Conclusion 12
7. Industry Overview 13
Firstcall India Equity Advisors Pvt Ltd 3
Investment Highlights
• Result Updates Q3 CY09
For the third quarter, the top line of the company increased 12%YoY and stood at
Rs.5182.80mn against Rs.4637.10mn of the same period of the last year. The bottom line
of the company for the quarter stood at Rs.1410.80mn from Rs.1319.70mn of the
corresponding period of the previous year i.e., an increase of 7%YoY.
EPS of the company for the quarter stood at Rs.16.66 for equity share of Rs.10.00 each.
Firstcall India Equity Advisors Pvt Ltd 4
Expenditure for the quarter stood at Rs.3229.90mn, which is around 12% higher than the
corresponding period of the previous year. Raw material cost of the company for the
quarter accounts for 20% of the sales of the company and stood at Rs.1050.70mn.
Employee cost stood at Rs.561.60mn accounts for 11% of the revenue of the company for
the quarter.
OPM and NPM for the quarter stood at 38% and 27% respectively from 40% and 28%
respectively of the same period of the last year.
Firstcall India Equity Advisors Pvt Ltd 5
• GlaxoSmithKline eyes Dr Reddy`s Laboratories
The company has emerged as frontrunner for a phased buy-in to Dr Reddy`s Laboratories.
A transaction could spark a fresh wave of foreign deals in India`s drugs sector. While
nothing is finalized, one possibility is that Glaxo will take a 20% stake in Dr Reddy`s
Holdings, a family vehicle that in turn owns 23.2% of the drug maker.
It is believed that this would give Glaxo a stake of just under 5%, worth around USD 165
million. But the British company could also get right of first refusal on the family`s
remaining holding.
• GSK’s Cervarix blocks cervical cancer virus; USFDA
The US Food and Drug Administration (USFDA) has announced that Cervarix from Glaxo
Smith Kline (GSK) was effective in blocking the cervical cancer virus.
The vaccine blocked the Human Papilloma Virus (HPV) about 93% of the time with some
minor side effects. The agency is going to consult a team of professionals to seek their
opinion on whether to approve the vaccine for female consumers falling in the age group
of 10-25 years.
If the company receives approval for Cervarix then it will end the two years wait of the
British drug-maker to introduce this vaccine in American markets. The vaccine has already
been approved in around 100 countries across the globe.
• GSK seeks government nod to introduce H1N1 drug in India
The company is seeking a nod from the government to market its patented drug for
treating the contagious H1N1 virus, popularly known as swine flu. The patented drug
Relenza is already registered with the Indian authorities and will not require clearance
from the Drug Controller General of India (DCGI).
Presently, the retail sale of the swine flu drug, oseltamivir (Tamiflu) is not permitted in
India. The drug can be sold through government hospitals as the treatment and diagnosis
of the flu has been carried out by the government itself. The company is undecided
whether to sell the drug through government hospitals or to opt for the retail route.
GSK presently does not manufacture the drug in India but the company is supplying the
drug to many countries across the globe and is also in the process of increasing its
manufacturing capacity for the drug. Despite the swine flu toll touching 90, Indian health
authorities have not yet placed any orders with domestic manufacturers Serum Institute,
Firstcall India Equity Advisors Pvt Ltd 6
Panacea Biotec and Bharat Biotec which are developing the vaccine. (Cadila Pharma is also
developing a vaccine in collaboration with US Company Novavax).
• GSK to launch `promecta` in India
The company is looking at launching its patented medicine promecta, used in treatment
of depleted platelet count, in India by this year-end or early next year.
The company have applied for the regulatory approval but they haven`t got it yet. But the
company hopes to get it by the end of this year of early next year.
• Extends strategic collaboration with Aspen
GSK to acquire 16% shareholding in Aspen in exchange for transfer of specialist products
and manufacturing facility in Bad Oldesloe, Germany.
• The company gets USFDA nod for Nicorette
The company has received final approval from the US Food & Drug Administration
(USFDA) to market Nicorette in the strengths of 2 mg and 4 mg. the drug would be
available in Lozenge form. Lozenge is a hard tablet or molded shape containing drug in a
sweetwened, flavored base.
Recently, the company received final approval from the US Food & Drug Administration
(USFDA) to market Lamictal Tablet in the strength of 25 mg, 50 mg, 100 mg and 200 mg.
Lamictal is an anticonvulsant drug used in the treatment of epilepsy and bipolar disorder
• Receives USFDA nod for epilepsy drug
The company has received final approval from the US Food & Drug Administration
(USFDA) to market Lamictal Tablet in the strength of 25 mg, 50 mg, 100 mg and 200 mg.
Lamictal is an anticonvulsant drug used in the treatment of epilepsy and bipolar disorder.
For epilepsy it is used to treat partial seizures, primary and secondary tonic-clonic
seizures, and seizures associated with Lennox-Gastaut syndrome.
Firstcall India Equity Advisors Pvt Ltd 7
Peer Group Comparison
Name of the
company
CMP(Rs.)
(As on Nov
11,2009)
Market Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E (x) P/BV
(x)
Dividend
(%)
GSK Pharma 1585.00 134249.50 72.86 21.84 8.75 400.00
Sun Pharma 1437.35 297698.70 48.57 29.59 5.78 275.00
Cipla 304.75 244690.30 12.38 24.62 5.63 100.00
Dr.Reddys labs 1127.75 190302.50 40.55 27.81 3.62 125.00
Key Concerns
� Forex Changes are affecting the margins.
� Margins are decreasing because of increasing operative expenses.
� High competition.
� Transformation of process patent to product patent.
Firstcall India Equity Advisors Pvt Ltd 8
Financials
Results Update 12 months ended Profit and Loss A/C (Standalone):
Value(Rs in million) CY07A CY08A CY09E CY10E
Description 12m 12m 12m 12m
Net Sales 15771.40 16806.80 19802.21 21782.43
Other Income 898.40 282.60 532.10 585.31
Total Income 16669.80 17089.40 20334.31 22367.74
Expenditure -10396.40 -10827.20 -12460.20 -13706.22
Operating Profit 6273.40 6262.20 7874.12 8661.53
Interest - 700.20 547.54 574.92
Gross Profit 6273.40 6962.40 8421.66 9236.44
Depreciation -161.60 -163.40 -159.29 -167.26
Profit before Tax 6111.80 6799.00 8262.36 9069.19
Tax -2114.60 -2315.40 -2764.34 -3034.28
Profit after Tax 3997.20 4483.60 5498.02 6034.90
Equity Capital 847.00 847.00 847.00 847.00
Reserves 12762.10 14563.90 20061.92 26096.82
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 84.70 84.70 84.70 84.70
EPS
(Before Extraordinary
Items) 47.19 52.94 64.91 71.25
Firstcall India Equity Advisors Pvt Ltd 9
Quarterly ended Profit and Loss A/C (Standalone):
Value(Rs. in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E
Description 3m 3m 3m 3m
Net Sales 4609.80 4619.50 5182.80 5390.11
Other Income 262.10 180.00 90.00
Total Income 4871.90 4799.50 5182.80 5480.11
Expenditure -2926.10 -2945.10 -3229.90 -3359.10
Operating Profit 1945.80 1854.40 1952.90 2121.02
Interest - 193.90 168.40 185.24
Gross Profit 1945.80 2048.30 2121.30 2306.26
Depreciation -36.70 -39.60 -39.90 -43.09
Profit before Tax 1909.10 2008.70 2081.40 2263.16
Tax -654.80 -692.10 -670.60 -746.84
Profit after Tax 1254.30 1316.60 1410.80 1516.32
Equity Capital 847.00 847.00 847.00 847.00
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 84.70 84.70 84.70 84.70
EPS
(Before Extraordinary
Items) 14.81 15.54 16.66 17.90
Firstcall India Equity Advisors Pvt Ltd 10
Charts
• Net sales & PAT
• P/E Ratio (x)
Firstcall India Equity Advisors Pvt Ltd 11
• P/BV (X)
• EV/EBITDA(X)
Firstcall India Equity Advisors Pvt Ltd 12
1 Year Comparative Graph
Outlook and Conclusion
• At the market price of Rs.1585.00, the stock is trading at 24.42 x and 22.25 x for CY09E and
CY10E respectively.
• EPS of the company is expected to be at Rs.64.91 and Rs.71.25 for the earnings of CY09E and
CY10E respectively.
• On the basis of EV/EBDITA, the stock trades at 19.10 x and 19.37 x for CY09E and CY10E
respectively.
• The price to book value of the company is expected to be at 6.42 x and 4.98 x for CY09E and
CY10E respectively.
• The company’s top line and bottom line is expected to grow at a CAGR of 11% and 15% over
CY07 to CY10E.
• The company has introduced 3 vaccines and 2 pharmaceutical products in 9MCY09. Company
has got very good response for Rotarix and Cervarix vaccine.
GSK Pharma BSE SENSEX
Firstcall India Equity Advisors Pvt Ltd 13
• The company has emerged as frontrunner for a phased buy-in to Dr Reddy`s Laboratories.
• The US Food and Drug Administration (USFDA) has announced that Cervarix from Glaxo Smith
Kline (GSK) was effective in blocking the cervical cancer virus.
• The company is seeking a nod from the government to market its patented drug for treating
the contagious H1N1 virus, popularly known as swine flu.
• The company is looking at launching its patented medicine promecta, used in treatment of
depleted platelet count, in India
• We recommend ‘BUY’ for this stock with a target price of Rs.1790.00 for long term.
Industry Overview
The Indian pharmaceutical industry is driving product development and breaking new grounds in
medicine research worldwide. The Indian domestic pharmaceutical market was estimated to be
US$ 10.76 billion in 2008 and is expected to grow at a high compound annual growth rate (CAGR)
of 9.9 per cent till 2010 and thereafter at a CAGR of 9.5 per cent till 2015.
Currently, the Indian pharmaceutical industry is one of the world's largest and most developed,
ranking 4th in volume terms and 13th in value terms. The country accounted for 8 per cent of
global production and 2 per cent of world markets in pharmaceuticals in 2008. The Indian
pharmaceutical off shoring industry is slated to become a US$ 2.5 billion opportunity by 2012,
thanks to lower R&D costs and a high-talent pool in India.
Exports
India exported drugs worth US$ 4.15 billion in 2007-08. Between April to December 2008, India
exported pharmaceutical products worth US$ 3.77 billion.
A report by industry research firm, RNCOS forecasts that pharmaceutical exports will grow at a
CAGR of 18.5 per cent between 2007-08 and 2011-12. This growth will be fuelled by multi-billion
dollar patent expirations and growth in the global generics market.
Growth
India's pharmaceuticals market is expected to grow by about 12-13 per cent in 2009, says a study
by consulting firm IMS.
Firstcall India Equity Advisors Pvt Ltd 14
The domestic pharma retail market posted a healthy growth of 10 per cent in May over the
previous month. On a moving annual total basis (April 2008 to May 2009), the organized pharma
retail market grew by 10.4 per cent to US$ 7.40 billion, which was slightly higher than the
previous month's value of US$ 7.32 billion, according to consulting company, ORG-IMS.
A recent study by Yes Bank estimates the domestic formulations market to touch US$ 21.5 billion
by 2015. The Indian vaccine market was worth US$ 665 million in 2007-08 and is growing at over
20 per cent. Exports contribute over US$ 360 million, while the domestic market for vaccines is
US$ 300 million.
Rural Market
According to estimates rural areas account for 21 per cent of the country's pharmaceuticals
market. In 2006-07, the rural Indian pharmaceuticals market was estimated at around US$ 1.4
billion, having grown at about 40 per cent in 2006-07 against 21 per cent in the previous year.
Elder Pharmaceuticals has earmarked US$ 8.21 million investment for a rural thrust and set up a
dedicated division called 'Elvista' to spread its network to villages, towns, sub-urban/periphery
markets and hinterland districts.
Pharmaceutical Retail
India has 5.5 million chemists and druggists, and the organized retail market accounts for just 2
per cent of the industry but is posting a year-on-year growth of 30-40 per cent. The country's
pharmaceutical retail market is expected to cross the US$ 10 billion mark in 2010 and be worth
an estimated US$ 12 billion- US$ 13 billion by 2012.
Generics
According to a report by IMS Health, the Indian generic manufacturers will grow to more than
US$ 70 billion as drugs worth approximately US$ 20 billion in annual sales faced patent expiry in
2008. With nearly US$ 80 billion worth of patent-protected drugs to go off patent by 2012, Indian
generic manufacturers are positioning themselves to offer generic versions of these drugs.
Indian drug maker Dr Reddy's Laboratories has partnered with GlaxoSmithKline to develop and
market generics and formulations in emerging markets abroad.
Diagnostics Outsourcing/Clinical Trials
The Indian diagnostics and pathology laboratory business is presently around US$ 864 million and
is growing at a rate of 20 per cent annually.
Firstcall India Equity Advisors Pvt Ltd 15
Moreover, the US$ 200-million Indian clinical research outsourcing market will reach up to US$
600 million by 2010, according to a joint study done by KPMG and the Confederation of Indian
Industry (CII) in September 2008.
Research & Development
The search for innovative drug molecules and better technologies by pharmaceutical MNCs is
expected to offer a windfall for the smaller research-oriented Indian firms.
MNCs, whose drug pipelines are drying up and more blockbuster drugs going off-patent, are
looking for alliances for drug co-development, buying or licensing out innovative molecules which
can further be developed into finished drugs. Smaller Indian firms such as Indus Biotech and
Rubicon Research are set to sign multiple deals with MNCs for molecules as well as technology
out-licensing.
Moreover, in a bid to boost R&D in the pharmaceutical sector, the government will provide US$
422.96 million for establishing six National Institutes of Pharmaceutical Education and Research
over the next five years. Biotechnology major, Biocon, will be investing US$ 20.11 million in the
next fiscal in enhancing its R&D.
Government Initiative
The Government has taken various policy initiatives for the pharmaceutical sector
• Government has offered tax-breaks to the pharmaceutical sector. Units are eligible for
weighted tax deduction at 150 per cent for the R&D expenditure incurred.
• Steps have been taken to streamline procedures covering development of new drug
molecules, clinical research etc.
• Government has launched two new schemes—New Millennium Indian Technology
Leadership Initiative and the Drugs and Pharmaceuticals Research Programme—especially
targeted at drugs and pharmaceutical research.
In a bid to promote new drug research in the country, the government is mulling creating special
purpose vehicles (SPV) with insurance cover which will be used to fund new drug research. The
Department of Pharmaceuticals is also toying with the idea of creating drug research facilities and
centers that can be used by private companies for such research work on a pay-and-use basis.
Investment
• According to Ministry of Commerce, domestic investment in the pharmaceutical sector is
estimated at US$ 6.31 billion.
Firstcall India Equity Advisors Pvt Ltd 16
• The drugs and pharmaceuticals sector has attracted FDI worth US$ 1.43 billion from April
2000 to December 2008.
Road Ahead
The Indian pharmaceutical industry will see tremendous growth in the coming years as consumer
spending on healthcare is increasing in India. Consumer spending on healthcare is expected to
increase from 7 per cent of GDP in 2007 to 13 per cent of GDP by 2015.
____________________________________________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other sources
believed to be reliable but we do not represent that it is accurate or complete and it should
not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any
inadvertent error in the information contained in this report. This document is provide for
assistance only and is not intended to be and must not alone be taken as the basis for an
investment decision.
Firstcall India Equity Advisors Pvt Ltd 17
Firstcall India Equity Research: Email – [email protected]
B. Harikrishna Banking
B. Prathap IT
A. Rajesh Babu FMCG
C.V.S.L.Kameswari Pharma
U. Janaki Rao Capital Goods
E. Swethalatha Oil & Gas
D. Ashakirankumar Automobile
Rachna Twari Diversified
Kavita Singh Diversified
Nimesh Gada Diversified
Priya Shetty Diversified
Tarang Pawar Diversified
Neelam Dubey Diversified
Firstcall India also provides
Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s, Takeover
Offers, Offer for Sale and Buy Back Offerings.
Corporate Finance Offerings include Foreign Currency Loan Syndications,
Placement of Equity / Debt with multilateral organizations, Short Term Funds
Management Debt & Equity, Working Capital Limits, Equity & Debt
Syndications and Structured Deals.
Corporate Advisory Offerings include Mergers & Acquisitions (domestic and
cross-border), divestitures, spin-offs, valuation of business, corporate
restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &
Execution, Project Financing, Venture capital, Private Equity and Financial
Joint Ventures
Firstcall India also provides Financial Advisory services with respect to raising
of capital through FCCBs, GDRs, ADRs and listing of the same on International
Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and
other international stock exchanges.
For Further Details Contact:
3rd Floor, Sankalp, The Bureau, Dr.R.C.Marg, Chembur, Mumbai 400 071
Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089
E-mail: [email protected]
www.firstcallindiaequity.com