GlaxoSmithkline Consumer Healthcare Ltd (F12/06) - Results Update
GlaxoSmithkline Consumer Ltd. recorded 15% yoy growth in net sales at Rs11.1bn during F12/06 driven by average volume growth of ~8% in Horlicks and Boost. Revenues for the quarter increased by 9.2% yoy (down 12.2% qoq) to Rs2.6bn, led by a average volume growth of ~4% in Horlicks and Boost. Biscuits category recorded a ~11% yoy growth during the year. The company has taken ~5% price increase in Horlicks and 2% price hike in Boost (in November) resulting in a average price increase of ~4.5%.
Operating profit for the year remained almost stable at Rs1.8bn. Operating margins dipped by 250bps to 16.6% mainly due to the sharp 190bps rise in raw material cost. Milk prices increased significantly by 16% this year and are expected to remain higher by ~20-25% in F12/07. Prices of other key raw materials like malted barley (expected to remain higher by 5% yoy in F12/07), wheat, sugar, coco powder etc are also expected to remain firm. During Q4 F12/06, margins dipped by 540bps to 10.4% due to higher input (370bps) and staff (250bps) cost. Lower adspend (12.7% of net sales in Q4 F12/06 from 14.9% of net sales in Q4 F12/05) restricted further margin erosion.
Other income (including cross charge of Rs70mn per quarter received on account of OTC products sold on behalf of GlaxoSmithkline Pharmaceuticals Ltd) for the quarter and year was higher at Rs169mn and Rs522mn respectively. PBT rose by 17.3% yoy to Rs1.9bn during F12/06 driven by higher other income and lower interest cost. Effective tax rate was at 33.4% resulting in a tax outgo of Rs636mn. Net profit for the year increased by 18.5% yoy to Rs1.3bn translating into an EPS of Rs30.1.
The management expects to record a double-digit topline growth in F12/07 driven by strong growth in Horlicks and Boost and expects to maintain the margins at ~20% (including other income). However, higher input cost could put pressure on margins. Exports account for 5% on the company’s total sales and are expected to continue at the same level. Acquisitions, if any could be a growth driver for the company. At the current market price of Rs582, the stock is trading at 19.3x FY07 EPS of Rs30.1 per share. We recommend a ‘Hold’ rating this stock.