GSK Consumer - Analyst Report

8/11/2019 GSK Consumer - Analyst Report

1/31

EdelweissResearchisalsoavailableonwww.edelresearch.com,

BloombergEDEL,ThomsonFirstCall,ReutersandFactset. EdelweissSecuritiesLimited

GSKConsumers(GSK)strongbrandequityinunderpenetratedandhighgrowthhealthfooddrinks(HFD)categoryrendersitalucrativeplayinthe

consumer goods space. Its sustaineddominance in the segmentamidst

intensecompetition isprimarilyduetoundividedfocusonproduct line,

continuous innovation and expansion of distribution network. We are

cautiously optimistic about GSKs strategy of venturing into other fast

growingfoodandbeveragescategories;however,keyrisk/concerncould

beitsinabilitytomeaningfullyscaleupnewsegmentslikenoodles,oats.

WeinitiatecoveragewithBUY.

BrandHorlicksundisputedleaderinmaltedhealthmilksegment

GSKis

the

undisputed

dominant

player

in

the

fast

growing

under

penetrated

domestic

malted health drinksegment (~70% market share) withHorlicks,Boost,Maltova and

Viva. Its key brands Horlicks and Boost have posted impressive double digit sales

growth(~20%CAGR)overthepastfiveyears.NewHorlicksvariants,ridinghighonthe

brand,havealsofoundfavourwithconsumers(contributes~20%toHorlicksstopline).

Innovatingandreinvigoratingofferingstocaptureconsumerpie

Thecompany, leveraging itsstrongbrandequity,hasventured intobiscuits,noodles,

and oats in line with its strategy of developing products in the health and wellness

segment.ItisalsoexpandingdistributioninNorth&WestwherethepresenceofGSK

islimitedandprovidesahugegrowthopportunity(North&Westcontributes~15%to

salesand

likely

to

reach

20%

25%

in

the

next

4years.

Auxiliary

income

from

the

OTC

segmentisexpectedtoberobustonthebackofnewlaunches.

Outlookandvaluations:Upbeat;initiatewithBUY

We believe processed food companies will grow faster visvis nonfood consumer

companies. Our target for GSK is 24x CY13E EPS (INR119.9) which gives us a value of

~INR2,900.WebelievethismultipleisjustifiedgiventhecompanysleadershipintheHFD

segmentwithpricingpower,highgrowthpotentialandnocompetition.Hence,weinitiate

coveragewithBUY.Onrelativereturnbasis,thestockisratedSectorPerformer.

INITIATINGCOVERAGE

GSKCONSUMERCashinginongrowthDNA

EDELWEISS4DRATINGS

AbsoluteRating BUY

RatingRelativetoSector Performer

RiskRatingRelativetoSector Medium

SectorRelativetoMarket Overweight

MARKETDATA(R: GLSM.BO,B: SKBIN)

CMP : INR2,540

TargetPrice : INR2,900

52weekrange(INR) : 2,700/1,930

Shareinissue(mn) : 42.1

Mcap

(INR

bn/USD

mn)

:

107/2,026

Avg.DailyVol.BSE/NSE(000) : 18.2

SHAREHOLDINGPATTERN(%)

*Promoterspledgedshares

(%ofshareinissue)

: NIL

PRICEPERFORMANCE(%)

Stock Nifty

EWConsumer

GoodsIndex

1month (0.8) (6.2) (1.5)

3months 5.5 (2.9) 2.6

12months 14.2 (19.6) 12.0

AbneeshRoy

+912266203141

[email protected]

HarshMehta

+912240635543

[email protected]

IndiaEquityResearch|ConsumerGoods

January10,2012

Promoters*

43.2%

MFs,

FIs

&Banks

16.5%

FIIs

14.1%

Others

26.2%

Financials

YeartoDecember CY10 CY11E CY12E CY13E

Revenues(INRmn) 23,061 26,975 31,795 37,567

Rev.

growth

(%) 20.0 17.0 17.9 18.2

EBITDA(INRmn) 4,365 5,045 6,028 7,173

Netprofit(INRmn) 2,999 3,543 4,221 5,044

Sharesoutstanding(mn) 42 42 42 42

DilutedEPS(INR) 71.3 84.3 100.4 119.9

EPSgrowth(%) 28.8 18.2 19.1 19.5

DilutedP/E(x) 35.2 29.8 25.0 20.9

EV/EBITDA(x) 22.0 18.7 15.3 12.5

ROAE(%) 32.8 34.5 34.2 34.1


2/31

ConsumerGoods

2 EdelweissSecuritiesLimited

InvestmentRationale

Vision2xontrack

GSK iswellontracktoachieve itsvisionofprofitablydoublingbusinessover200711with

revenuegrowingat20%CAGRsincepast5years.

Chart1:

Revenue

growing

at

20%

CAGR

Source:Company,Edelweissresearch

HugebrandequitywithdominantmarketshareinHFD

GSK dominates the domestic HFD segment with brands Horlicks,Boost, Maltova andViva,

whichcollectivelycommand70%plusshareonbackoftheextremelypopularHorlicksbrand.

Thecompanyhasnearmonopoly inwhiteHFD(75%oftotalHFDmarket)with itsHorlicks

brandwhichhas~54.5%marketshareoftheoverallmarket(white+brown).InbrownHFD,

brandBoost

(market

share

~13%)

is

facing

higher

competitive

intensity

from

Cadburys

Bournvita(~16%marketshare)andHeinzsComplan(~11%marketshare).

Chart2:GSKdominatesHFDsegment


0

7,000

14,000

21,000

28,000

35,000

CY06 CY07 CY08 CY09 CY10 CY11E

(INRmn)

Horlicks54%

Boost

13%

Viva

2%

Maltova

1%

Bournvita

16%

Complan

11%

Others

3%

GSKisontracktodoublebusiness

70%+marketshareonthebackof

extremelypopularHorlicksinHFD


3/31

GSKConsumer


Strongbrandenablesthecompanycommandapremiumoveritsnearestcompetitor.Thisis

evident from the fact that Horlicks Gold (30% premium to base Horlicks) has gained 2%

market share in three months of launch and has created a huge entry barrier for new

entrantsintheHFDsegment.

SouthandEast India, facingmilkdeficiency,usedHorlicksasamilksubstitute,making ita

leading

brand

in

those

regions.

Ergo

penetration

is

high

in

these

regions

vis

vis

North

and

West.However,still thecategorypenetration issignificantly lowat22% (11% inruraland

40%plusinurban)countrywideprovidingasignificantdemandupside.

Chart3:LowpenetrationofHFDprovideshumungousgrowthopportunity

Chart4:GSKsHFDmarketshareHighinSouthandEast


0.0

10.0

20.0

30.0

40.0

50.0

Rural Urban AllIndia

(%)

0

20

40

60

80

100

North West South East

(%)

HFDpenetrationlevelsare

extremelylowat22%panIndia

NorthandWestprovidepotential

upside


4/31

ConsumerGoods


Hugebrandequityastrongentrybarrier

GSKsstrongfootholdintheHFDsegmenthasposedasignificantentrybarrierwithHorlicks

being synonymous with white HFD. Big players like Hindustan Unilever (HUL), Dabur and

Nestlehave triedtheirhand inthesegment,buthadtorecalltheirofferingsastheywere

unabletogainanysignificantground.

Nestle,which

has

astrong

reach

in

India,

had

introduced

Milo

(a

leading

product

in

South

EastAsianmarkets)in1997,whichwaswithdrawnin2008asitmanagedtocaptureamere

3%ofmarketduring its longstint.HULtest launchedAmazeduring200709.Theproduct

positionedasabrainfoodforchildrenwasneverlaunchedatthenationallevel.Daburhad

launched (2009) Chyawan Junior leveraging the equity of Chyawanprash. However, the

producthasreceivedonlymoderateresponse.

Innovatingandreinvigoratingofferingstocaptureconsumerpie

The company has beensuccessful in keeping alive the freshness quotient of its brandsby

consistently innovatingand introducingvariantscatering tocustomerneeds.Aspartof its

strategy, GSK is leveraging its Horlicks brand to fill various gaps by targeting specific

consumer

needs.

These

extensions

today

contribute

20%

plus

to

overall

Horlicks

revenue.

Giventhepricingpremiumforvariants,thisalsohelpsinpremiumisation.

The new variantsJunior Horlicks, Mother Horlicks and Womens Horlicksare not only

aiding volume growth, but also helping premiumisation play. The recent launch Horlicks

Gold (at 30% premium over base) targeted at loyal Horlicks consumers has gained good

ground,clocking2%marketsharewithinthreemonthsoflaunch.

Fig.1:HFDevolution

BigplayerslikeHindustanUnilever

(HUL),DaburandNestlehavetried

theirhandinthesegment,buthad

torecalltheirofferings


5/31

GSKConsumer


Chart5:Horlicksrevenuesplit


Although the malted health food drink segment forms a small part of the processed food

andbeverages industry, the segment is estimated to growsignificantlyon backofsurging

demandforhealthyandnutritiousfoodproducts.GSK iswellpositionedwithrobustbrand

equity to take advantage of this opportunity. The Indian malt based HFD market was

estimatedatINR35bninFY11andhasbeenposting20%CAGR.ThepenetrationlevelofGSK

inHFDsegmentis~22%onpanIndiabasiswith11%inruralIndiaand40%plusinurban.

HorlicksandBoosthavepostedanimpressive~20%CAGRoverthepastfiveyears(CY0610).

The penetration malted HFD market in India is less and the segment is poised for high

growth.

DiversifyingtotrimdependenceonHFDsegment

GSK

is

increasingly

working

towards

reducing

dependence

on

the

HFD

segment

and

strengthening its nonHFD portfolio. It has diversified into biscuits, noodles, oats, healthy

snackingbarsandenergydrinks,whichnowcontribute67%tothetopline,whichitintends

totakeupto15%inthenextthreefiveyears;weestimate9%byCY13.

We expect GSKs nonHFD portfolio to grow faster than the HFD portfolio. It will further

reduce the companys dependence on a single category to a well diversified portfolio,

providingabroaderbaseforearningsgrowth.

Junior

10% Gold

3%Lite

2%

Mother

2%

Women

3%

Base White

73%

Base Chocolate

7%

20%contributiontoHorlicks

revenuefromvariants

NonHFDportfoliotogrowfaster

thantheHFDportfolio


6/31

ConsumerGoods


Chart6:Productportfoliorevenueshare


Bankingonhealthandnutritionpositioning:GSKhasmaintaineditspositioningofoffering

nutritiousandhealthyproductswhichiscompletelyinsyncwiththegrowingtrendofhealth

consciousness.Healthandwellnessisbecomingthefocusofmarketplayersinthefoodand

beveragessectorandthecompanyiswellplacedtotakeadvantageofthesame.

Venturing into high growth noodles segment: Foodles (noodles: INR18bn category) was

launchedinDecember2009andithasgarneredanallIndiamarketshareof2.02.5%with

sales of INR323.5mn in CY10. The product is being promoted as an offering with higher

nutritionalvalueanditcomeswithavitaminpackedhealthmakersachet.Theproducthas

been differentiated on the multigrain and wheatbased noodle offering. However, the

company is now planning to revisit its noodles strategy as it has been unable to increase

marketshareduetolackofadditionalcapacityfromthirdpartymanufacturerIndoNissan.

It

is

likely

to

focus

on

South

and

East

markets

where

it

can

leverage

onHorlicks

brand

equity.

Fig.2:PromotionofFoodles

Source:Company

Extensions

andnew

formats

16%

Base HFD

84%

2007 Extensionsandnew

formats

23%

Base HFD

77%

2011

Thecompanyisnowplanningto

revisititsnoodlesstrategyasithas

beenunabletoincreasemarket

share


7/31

GSKConsumer


Consumer preference is shifting to healthy food. At the same time, with changes in food

habits,readytoeat food isoneofthe fastestgrowingcategories (CAGR~20%).Here,GSK

hasgrabbedmarketshare initially,especially inSouthandEast,onbackofHorlicksbrand

equity and a strong distribution network. The market share in South and East reached

around6%withinaspanofayear.However,Foodleshasbeenperformingpoorlyinrecent

months.Weexpectflatvolume inthiscategoryfortheentireyeardespitea lowbase.The

company

is

evaluating

its

strategy

on

this

front.

Biscuitsandsnack foodcategorygrowing indoubledigits:GSKsentry inothersegments

likebiscuits,cookiesandhealthysnackshasplayedoutwellasithasleveragedtheHorlicks

healthperception.Despitestiffcompetitioninthesecategories,theperformancesofarhas

beenpositive.Contributionofthesenewcategoriestosalesisexpectedtorisesignificantly.

In2010,thecompanylaunchedHorlicksBiscuitsinthreeflavoursandalsoHorlicksCookies.

Asaresult,biscuitscategoryregistered57%YoYgrowthinQ1CY11,49%inQ2CY12and18%

inQ3CY11.Asteadygrowthof20%isexpectedinthiscategory.Thestrategyofgrowingin

these categories of packaged food and beverages with a robust positioning in health and

nutritionsegmentoffersapromisinggrowthopportunity.

Launch

of

sports

drink:

The

company

launchedLucozade

Sports

Isotonic

Sports

drink

in

2010 which is a isotonic formulation that replaces fluid and electrolytes. The domestic

energydrinkmarketisestimatedatINR1.5bn.Thoughstillinanascentstage,thesegmentis

growing fast with Pepsi and Amul coming in with offerings like Gatorade and Stamina,

respectively.

Entryintoglucosepowdersegment:GSKhasenteredtheINR6bnglucosepowdersegment

withBoostGlucoseinNorth,SouthandWestandGlaxoseDundertheHorlicksbrandinthe

East. The category is expected togrow exponentially. Margins in this category areslightly

lowerthaninHFD,butarehigherthanbiscuitsandnoodles.

Nutribar: DuringFebruary2009 the company launchedHorlicksNutribara highnutrition

cerealbar

offered

as

ahealthy

snack

between

meals

and

aconvenience

to

urban

customers.

Italsolaunchedpremiumproteinsupplements.However,ithasnowbeenwithdrawndueto

issueswithoutsourcingmanufacturingfacilities.

Oats:ThecompanyhasrecentlyventuredintotheINR2bnoatsmarketunderbrandHorlicks,

whichhasbeenwellreceived.AsperthesurveyconductedbyGSK,mostHorlicksconsumer

buyoatstherebyGSKventuredintooats.

Foodprocessingtojump~4.5xby2020

Thedomestic food processing industry isestimatedat INR 2,000bn andposted a CAGRof

~7%untiltheTenthFiveYearPlan.Withrisingdemand,thesectorispoisedtogrowatmore

than10%.

With

increasing

disposable

incomes,

changing

lifestyles,

hectic

work

schedules,

rising time pressures, rising health consciousness and increased awareness levels, various

packaged food and beverage categories are growing exponentially.Consumer preferences

areshiftingintermsofeatinghabitswithan increased inclinationtowardswestern,ready

toeatandreadytocookconveniencefood.

Despitestiffcompetitioninthese

categories,theperformancesofar

hasbeenpositive.

Enteringnewersegmentsbutwith

healthinmind

Nutribarhasnowbeenwithdrawn

duetoissueswithoutsourcing

manufacturingfacilities


8/31

ConsumerGoods


Chart7:Changeinfrequencyofeatingnonhomemadefoodoverpastfiveyears

Source:EdelweissSurvey

With rising urbanization and significant surge in reach of information and communication

technologies, lifestyles are transforming. As a result, the processed food and beverages

segment is growing impressively with its increasing contribution to the consumer goods

sector.

Chart8:%shareofsegmentsinconsumergoodsinCY10 Chart9:%shareofsegmentsinconsumergoodsinCY20E

Source:EdelweissSurvey

Riseindisposableincomeshasledtoriseinconsumerspending.Asignificantamountofthis

increase

has

been

directed

towards

processed

food

consumption.

An important trend in this scenario is the rising health consciousness among consumers.

Withtheprimevaluepropositionofhealthandnutrition,GSKisstronglypositionedtocater

tothisneed.

Increased

significantly

46%

Increased

marginally/rema

inedsame

37%

Decreased

17%

Food

46%

HPC

38%

Others

16%

Food

52%HPC

39%

Others

9%

Withrising

urbanization

the

lifestyleofpeopleistransforming

Risinghealthconsciousnessamong

consumers


9/31

GSKConsumer


Chart10:Consumersensitivitywhilepurchasingpackagedfood

Source: EdelweissSurvey

RuralIndiatobeanotherpotentialgrowthmarket:Ruralmarketisanothergrowthdriver

forGSKasthissegmentscontributiontotheconsumergoodssectorhasbeenontherise.

Theruralpercapitaincomehasincreasedatafasterrateof40%over200409asaresultof

rural development boosted by growth in manufacturing and agricultural sector and

government initiatives likeNEREGA.GSKhasbeenmakingefforts totap into thissegment

withvariousdistribution initiativesandspecializedpackaging insmallerSKUs(INR5, INR10

andINR15).Theseinitiativesarelikelytoincreasecontributionfromruralmarkets.

Chart11:RuralIndiaisabiggermarketforconsumergoods

Source:Company,

Edelweiss

research

0.0

20.0

40.0

60.0

80.0

100.0

Quality

Health

consciousness

Easyavailability

atstores

Brand

Convenient

tocook

Price

Promotional

offers

(%)

Strongly

sensitive Mildly

sensitive Indifferent

Rural

56%

Urban

44%

Ruralinitiativeincludedistribution

initiativesandspecializedpackaging

insmallerSKUs(INR5,INR10and

INR15)


10/31

ConsumerGoods


Chart12:Ruralconsumergoodsmarketsettodoubleinnextfiveyears


Distribution network: To maintain high velocity of rural growth, GSK has a strong

distributionnetworktofallbackon.Ithasreduceditsdistributorsfrom~2,000to~600and

buildastrong subdistributor force of~5,000which has helped it increasedirect reach to

0.7mnoutletsfrom0.5mninCY09.Thecompanyhasanoverallreachof1.5mnoutletswith

itsflagshipbrandHorlicksbeingpresentin~1mnoutlets.

Businessauxiliary incomefromtheOTCsegment:GSKhasadistributionalliancewithGSK

Asia(CrocinandEno)andGSKPharma(Iodex)wherethecompletesupplychain ishandled

byGSKforwhichitchargesacommissionof16.7%toGSKAsiaand10.5%toGSKPharma.

Revenuethusgeneratedformsapartofitsbusinessauxiliary incomecontributing~15%to

EBITDA.

The

OTC

segment

has

done

well

in

establishing

strong

brand

equity

backed

by

dynamicinnovation.CrocinPainRelief andCrocinSuspensionDouble have been recently launched.

Iodexheadachewaslaunchedinthelastquarterof2010.Enobrandhasalsosurged2025%.

GSK has also entered oral healthcare with Sensodyne (toothpaste) and the nasal strips

category withBreatheRight. Sensodyne is witnessing robust success by capturing 3% of

total toothpastemarket (25%ofsensitive toothpastemarket).Sensitivecategorysgrowth

(2025%)isoutpacingtoothpastemarketandisanINR4bnmarketopportunity.

Exports: GSK exports HFD products to Sri Lanka, Bangladesh, Nepal and the Middle East.

Exportscontributed~6%tothetop line inQ3CY11andmanagementexpectsthissegment

togrowatover15%inthecomingquarters.

Table1:

HFD

versus

non

HFD


120

225

0

50

100

150

200

250

CY10 CY15E

(USDbn

)

CY06 CY07 CY08 CY09 CY10 CY11E CY12E CY13E

Malted/cereal/proteinbasedfood 95.3 96.0 96.0 95.0 94.0 92.8 91.7 90.9

Biscuits and snackfood 4.1 3.5 3.5 4.4 5.6 6.8 7.8 8.7

Others 0.7 0.6 0.5 0.6 0.5 0.5 0.4 0.4

Directreach

to

0.7mn

outlets

Managementexpectsthissegment

togrowatover15%inthecoming

quarters

Auxiliaryincomecontributing~15%

toEBITDA


11/31

GSKConsumer


Focusedmarketingstrategytorevitalisebrands,explorenewsegments

GSK has consistently shifted thepositioning of its brands in line with the dynamics of the

industryandchangingconsumerpreferences.Horlickswaspreviouslypromotedasageneric

healthdrink.Later,variantswereintroducedtocatertospecificmarketsegments.Looking

at the companys evolving product portfolio, it is clear that GSK is actively expanding

through the routes of market penetration (with established brands Horlicks and Boost),

productdevelopment

(with

introduction

of

variants

of

existing

brands

and

new

brands

like

Maltova and Viva in the existing market segment), market development (with products

specifically for untapped segments like women and elderly diabetics) and diversification

(venturingintonoodles,snacksandsportsdrinksmarket).

Fig.3:Productportfolio


Fig.4:Productsnapshot

Source:Company

Bankingonhealthandnutritionpositioning:GSKhasmaintaineditspositioningofoffering

nutritiousandhealthyproductswhichiscompletelyinsyncwiththegrowingtrendofhealth

consciousness.Healthandwellnessisbecomingthefocusareaofmarketplayersinthefood

andbeveragessectorandGSKiswellplacedtocashinonthesame.

Healthandwellnessisbecoming

thefocusareaofmarketplayersin

thefoodandbeveragessectorand

GSKiswellplacedtocashinonthe

same.


12/31

ConsumerGoods


Usingcelebrityendorsementstobuildbrandequity:Thecompanyhasbeenusingcelebrity

endorsements to promote its brands and connect with consumers. Kapil Dev, Sachin

Tendulkar (1989), Virendar Sehwag (2002) and Mahendar Singh Dhoni (2008) have been

brandambassadorsforBoostwhich isthefirstHFD in Indiatobeendorsedbyacelebrity.

KonkanaSenwasroped inforpromotingWomensHorlicks.Horlickshadalsotiedupwith

movieslikeIceAgeIIandSupermanReturnstoconnectwithkids.

Fig.5:GSKspromotionovertheyears

Source:Company

Increased advertisement andpromotion spending:Tokeepupwithstiffcompetitionand

providestrong

backing

to

sales,

GSK

has

been

augmenting

its

spending

on

advertisement

andpromotions.AdvertisingandpromotionsexpenditureinCY10was16.1%ofsalesagainst

12.9% in CY06. Higher spending is set to reinforce its brand equity. We expect, the ad

spendstosustainatthesehighlevelsasitentersnewcategories.

Chart13:A&Paspercentageofsaleshasbeenrising


8.0

10.0

12.0

14.0

16.0

18.0

CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10

(%

)

A&Pasa%ofsales

Advertisingandpromotions

expenditurein

CY10

was

16.1%

of

salesagainst12.9%inCY06


13/31

GSKConsumer


Chart14:Distributionnetworkisspreadingwings


GSKs distribution initiatives and introduction of low unit packs have helped it augment

presence in rural market. The contribution of small SKUs to the companys revenue is

merely3.5% indicatinghugepotentialforfuturegrowth.Thecategory isgrowingat~40%.

Ruralmarketscontribute27%tothetopline.

Encouragingresponse fromNorthandWest Indiaofferahugescope forexpansion:GSK

hasstrongbrandequityinSouthIndia;ithasnowincreasedfocusondistributionexpansion

intheNorthandWestaswellwhereitsmarketshareissignificantlylowerat34%and23%,

respectively. Boost, which grew 25% overall, grew 35% in these regions. With strong

presence insouthernandeasternregions, tapping into theNorthandWest isgoingtobe

thekeygrowthdriverforthecompany.

Chart15:

Area

wise

revenue

contribution

(%)


0.3

0.4

0.5

0.6

0.7

0.8

CY09 CY10 CY11E

(Numberofoutle

ts(mn))

South

46%

West

4%

East

38%

North

6%

Exports

6%

ThecontributionofsmallSKUsis

merely3.5%indicatingstrongcase

forfuturegrowth.


14/31

ConsumerGoods


Strongbrandequityenablespricehikestooffsetrawmaterialinflation

GSKsdependenceonagricommoditiesishigh.Pricesofkeyrawmaterialslikemilkandmilk

powder(~28%oftotalrawmaterial),malt(~16%)andwheat(~6%)havecatapultedonback

offoodinflation.Totalinputcosthasrisen21%onanaverage(inflationcontributed10%)in

CY10.ThecompanytriestocontainCOGSinflationbytakingpricehikes,whichwebelieve,is

notdifficultduetoitsstrongbrandequityandhighmarketshare.

Chart16:Milkpricehasbeenontherise

Chart17:Wheatpricebenign


0

50

100

150

200

250

1Feb

05

1Jun

05

1Oct05

1Feb

06

1Jun

06

1Oct06

1Feb

07

1Jun

07

1Oct07

1Feb

08

1Jun

08

1Oct08

1Feb

09

1Jun

09

1Oct09

1Feb

10

1Jun

10

1Oct10

1Feb

11

1Jun

11

1Oct11

0

40

80

120

160

200

1Feb

05

1Jun

05

1Oct05

1Feb

06

1Jun

06

1Oct06

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07

1Jun

07

1Oct07

1Feb

08

1Jun

08

1Oct08

1Feb

09

1Jun

09

1Oct09

1Feb

10

1Jun

10

1Oct10

1Feb

11

1Jun

11

1Oct11

Totalinputcosthasrisen21%onan

average(inflationcontributed10%)

inCY10


15/31

GSKConsumer


Chart18:Barleypricestabilizing

Chart19:RobustvolumegrowthdespitepricehikeinHFD

Chart20:Grossmarginrobustdespiterawmaterialinflation


0

40

80

120

160

200

1Feb

05

1Jun

05

1Oct05

1Feb

06

1Jun

06

1Oct06

1Feb

07

1Jun

07

1Oct07

1Feb

08

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08

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09

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09

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10

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11

1Jun

11

1Oct11

0.0

3.6

7.2

10.8

14.4

18.0

CY06 CY07 CY08 CY09 CY10

(%)

Volume Price

30.8

32.2

33.6

35.0

36.4

37.8

CY06 CY07 CY08 CY09 CY10

(%)

Grossmargin


16/31

ConsumerGoods


Valuation

GSKsbroadproductportfolioprovidesagoodplayonIndianprocessedfoodspendingby

virtue of its strong presence in underpenetrated and highgrowth categories. Its

positioning on the health and wellness platform backed by strong brand image of key

brandHorlicks

is

progressive.

This,

combined

with

demonstrated

ability

to

enter

new

categories and continuous innovations,justifies robust growth and rerating of the stock

overthepastfiveyears.

ThecompanydominatestheHFDspacewith~70%marketshare.Itsgrowingfocusonhigh

growthnonHFDfoodandbeveragecategoriesreinforcesourbelief inthecompanyshigh

growthpotential.Wehaveseenthatfoodcompanies, likeNestleandJubilantFoodworks,

trade at a premium compared to other stocks in the consumer goods sector owing to

establishedpresenceinthefastestgrowingfoodsbusiness.Also,webelieveprocessedfood

companies will grow much faster visvis nonfood consumer companies and thereby

deserveapremiummultiple.OurtargetforGSKis24xtwoyearsforward,whichonCY13E

EPSofINR119.9givesusavalueof~INR2,900.WithGSKbeingpresentmainlyinHFDandits

nonHFD

presence

to

be

restricted

to

niche

and

premium

segment,

we

expect

it

to

trade

at

a discount to Nestle however current valuation is likely to sustain. Hence, we initiate

coverageonthestockwithaBUYrecommendation.Onrelativereturnbasis,thestock is

ratedSectorPerformer.

Chart21:1yearforwardpricebandchart


0

1,000

2,000

3,000

4,000

5,000

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

(x)

8x

16x

24x

40x

48x

32x

Multipleof24xonCY13EEPSof

INR119.9givesavalueofINR2,900


17/31

GSKConsumer

17

EdelweissSecuritiesLimited

Table2:Valuationsnapshot

Priceason09th

Jan2012 Source:Company,Edelweissresearch

*

CY

numbers

#

Bloomberg

estimates

Company Market Mcap Divyield

(%)

CAGR

(%)

Price(INR) (INRbn) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11E FY12E FY13E FY13E FY1113E

FMCG

Asian

Paints 2,682

25 7 8 7.9 9 4.7 1 15 .2 3 0.5

28.3

23.3

19.0 17.6 14.2 43.3 38.0 38.8 2.4 14.5

Colgate 987

134 29.6 31.2 36.7 33.3

31.6

26.9

24.6 22.6 19.0 113.4 101.6 101.4 3.1 11.3

Dabur 98

170 3.3 3.7 4.5 30.1

26.2

21.8

22.8 18.7 15.5 51.2 43.2 39.7 1.6 17.4

Emami 327

49 15.1 16.9 20.7 21.6

19.3

15.8

19.6 17.4 13.1 34.8 35.9 40.2 2.2 17.1

Godrej

Consumer

386

125 14.9 16.8 20.8 25.9

23.0

18.6

22.3 18.4 14.9 35.9 28.2 28.7 2.2 18.1

GSK

Cons umer* 2,512

10 6 7 1.3 8 4.3 1 00 .4 3 5.2

29.8

25.0

22.0 18.7 15.3 32.8 34.5 34.2 1.6 18.6

Hindustan

Uni lever 393

850 9.8 11.5 13.5 40.1

34.2

29.2

34.8 28.3 23.5 79.8 80.4 75.2 2.1 17.2

ITC 202

1575 6.6 8.0 9.4 30.5

25.4

21.5

19.7 17.0 14.1 33.2 36.1 38.6 2.8 19.1

Marico 153

94 4.7 5.2 6.6 32.8

29.5

23.3

24.0 20.1 15.8 30.3 30.9 31.4 1.2 18.7

Nestle* 4,088

3 94 8 8.7 1 06 .2 1 29 .9 4 6.1

38.5

31.5

31.2 25.1 20.1 119.1 96.6 82.6 1.9 21.0

United

Spirits 514

67 35.1 36.9 46.4 14.6

13.9

11.1

10.5 9.3 8.3 11.6 10.8 12.5 2.7 14.9

United

Breweri es # 414

109 6.0

7.6

10.9

68.6

54.5

38.1

32.3

26.1

18.6

14.3

15.5

17.9

0.3

34.2

Pidi lite# 144

73 6.4

6.6

8.2

22.4

21.8

17.5

15.3

14.5

11.7

31.2

27.5

27.9

1.7

13.1

Britannia# 450

5 4 1 0.4

15.9

20.0

43.2

28.3

22.5

28.6

19.0

15.2

40.5

41.4

48.0

2.2

38.5

FMCG Mean 33.9x 28.9x 23.3x 23.3x 19.4x 15.8x 53.2 48.7 47.6 2.2 19.6

FMCG Mean(marketcapwtdaverage) 34.0x 29.0x 24.4x 24.6x 20.7x 17.0x 56.4 54.1 52.5 2.4 18.0

FMCG Mean(exNestle) 29.5x 26.1x 21.6x 21.9x 18.8x 15.4x 46.6 43.9 44.1 2.2 17.1

ROE(%)P/E(x) EV/EBITDA(x)DilutedEPS(INR)


18/31

ConsumerGoods


KeyRisks

Rawmaterialpriceinflation

Withmilkpowder,milkandmaltextractbeingmajorcostdriversforGSK,food inflation is

oneofthekeyrisksfacedbythecompany.Inthepastoneyear,atthewholesalelevel,milk

pricessurged20%.Maintainingmarginwouldbeachallengeinthecurrentscenarioofrising

inflation. In addition, the company has been increasing its A&P spending, which could

furtherpressurisecosts.

Competitiongettingstiffer

Theprocessedfoodsector isgrowingsignificantlyandallmultinationalaswellasdomestic

companiesareaggressively innovatingandenhancingeffortsto increasecontributionfrom

this segment. GSKwill, therefore,need todrive itsresources towards augmenting A&P to

back up sales. Additionally, the scope for product differentiation in malted HFD is less in

termsofthenutritionalproposition.Thisaspectmakescompetitionstifferinthissegmentas

companieshavetoinnovatetowardsproductdevelopment.

Competitionto

HFDs

from

other

categories

Themaltedhealthfooddrinkcategory isstillat lowpenetrationlevelsandfacesresistance

fromcategoriesliketea,coffee,juicesandbreakfastcereals.

Productfailure

ApartfromHFD,newproductsfacegreaterriskoffailure.HorlicksChillDoodhandLucozade

havefailedtomakeanimpactinthemarket.

Economicslowdown

Urban sales contribute 73% to revenue. A slowdown in economic growth may negatively

affectthecompanysbusiness.


19/31

GSKConsumer


CompanyDescription

GSK is a leading healthcare company in India with GlaxoSmithKline, UK, as parent. It is

Indias leading health food drinks manufacturer with growing presence in categories like

biscuits, noodles, snacks, sports drinks, glucose powder and OTCs. The company has

manufacturing facilities in Nabha (Punjab), Rajamundry (Andhra Pradesh) and Sonepat

(Haryana).It

has

astrong

marketing

and

distribution

network

in

India

with

direct

coverage

ofover700,000retailoutlets.

Fig.6:Businessmix

Source:Company,

Edelweiss

research

Healthfooddrinks

HFDproductscontribute94%tothecompanysrevenue.

The category is estimated to be worth INR35bn with two key variants viz. white (~75%

market)andbrown(~25%market).


20/31

ConsumerGoods


Chart22:WhitedominatesHFDssalesmix


WhiteHFD

Horlicks:Horlicks is Indias leadinghealthfooddrinkbrandwhich ispresentsince1930s.It

has undergone through many revamps and is today offered in various flavours and

variantsvanilla, toffee, elaichi and chocolate. To specifically cater to preschool children

andchildren inthe46agegroup,thedrink isavailableasJuniorHorlicks123andJunior

Horlicks456.MothersHorlicksisanutritionalsupplementtargetedatpregnantandbreast

feedingwomen.Horlicksliteisvariantespeciallydesignedforhealthconsciousconsumers.

Table3: HorlicksjourneywithHFD


White

75%

Brown

25%

Year Brand Comments

1997 Mother'sHorl icks Forti fi edwithDHAandsupplementedwith26essentialnutrients,designedkeepingin

mindthespecial needsofpregnantwomenand breastfeedingmothers

2005 Horl icksLite Formulated

keeping

in

mind

the

needs

of

adults

and

people

with

diabetes;

high

fibre

and lowin fat

2006 Horl icksJunior123 Es peci al lyintroducedforpreschool children,offers completenutritionalrequirements

2008 Women'sHorl icks Enri chedwithHEMOCALTMnutrients:auniquecombinationofgoodqualitymilk

protein,and 100%dailyrequirements,promises toaddressthedailynutritionalneeds

ofbusy,overstressedmodernIndianwomen

2011 Horl icks Gold Ata30%premiumtobase,targetedaturbanconsumers,and offers highernutrition.

Horlicks Goldis availablein twovariantsGoldenMaltand ChocolateDelightin

cartons pricedatINR195and ja rs pricedatINR200.Thoughpricedhigher,has similar

marginprofileas thebasevariant

HorlicksdominatethewhiteHFD

market


21/31

GSKConsumer


Table4: Horlicksrevenuesplit


BrownHFD

Horlicks:ThoughitdominateswhiteHFD,ChocolateHorlicksisalsopresentinbrownHFD.

Boost: Boost is a health food drink brand in chocolate flavour. It is more of a granular

productand ispromotedasanenergyboosterwiththepresenceof iron,zinc,magnesium

andothervitaminsandminerals.

Maltova:Maltova isachocolatehealth fooddrinkwithavaluepropositionof tastealong

withhealth,

targeted

at

children.

It

was

acquired

from

Jagatjit

Industries

in

2000.

Viva:Vivaisafamilyhealthdrinkwithacombinationofessentialvitaminsandmineralsina

blendofmaltedbarley,wheatandmilk.

NonHFDcategories

NonHFDaccountsfor6%ofGSKsrevenue.

Table5:GSK'sJourneyinnonHFD


HorlicksBiscuits:Biscuitsisoneofthefastestgrowingcategoriesinthedomesticconsumer

sector with value market size of more than INR120bn in FY11. This category is also the

secondlargestrevenuecontributortothecompany,accountingforINR1.4bn(5.5%ofsales)

Brand Percentagecontribution

Horlickscorebrand White ~73%

Horlickscorebrand Chocolate ~7%

JuniorHorl icks ~10%

MotherHorlicks ~2%

HorlicksLite ~2%

HorlicksGold ~3%

Women'sHorlicks ~3%

Year Brand Comments

1992 Horl i cksBi s cui ts P roduc tfocusesonpowerofcalcium

2005 Li te

Bite

Biscuits Nutritional

food

for

diabitic

and

health

concious

2005 Fl avorDrink Chocolate,Vanilla,HoneyBuzz,Standard,Toffee,

Elaichi2009 Horl i cksChilled Chocolateflavordrinkforkids

2009 Horl i cksNutriBar Lowfatlowsugar,fillerin betweenmeals

2009 Acti veGrow Nutritiousproductlaunchedforinfant

2009 Juni orHorlicks

Biscuits

Nutritional foodforpreschool kidsas partoftheir

dailydiet

2010 Horl i cksFoodles Abrandofinstantnoodles

2010 Gl axos eD GlaxoseDunderHorlicks brandforEastIndia.

Boost

2004 Boos tEnergyShake Readytodrinkmilkshaketargetedatkids

2010 Boos tGlucose New

glucose

drink

launched

in

North

and

West

Lucozade

20 10 Luc oza deSpor t I nter na ti ona lIsotonicsports drink

Avarietyofnewproductslaunched

toincreasesharefromtheNonHFD

category


22/31

ConsumerGoods


inCY10.Currently,GSK isamarginalplayer in thiscategory,withamarketshareof1.2%.

The company is present in the biscuits category viaHorlicksBiscuits in three flavors and

HorlicksCookies.ItsLiteBitebiscuitscatertodiabeticsandhealthconsciousconsumers.

Nutribar:GSK launchedHorlicksNutribar inFebruary2009. It isahighnutritioncerealbar

offered as a healthy snack between mealsand provides convenience to urbancustomers.

Howeverithasnowbeenwithdrawnduetoissueswithoutsourcingmanufacturingfacilities.

Foodles: Growth of instant noodles, the INR18bn category growing 25% annually, is

expectedtodoubleinthecomingthreefouryears.GSKenteredthesegmentinIndiaatthe

beginning of CY10. Foodles is present in multigrain and wheat variants with a high

nutritionalvaluepropositioncomparedtoothernoodlesbrands.Thisproductcomeswitha

vitaminpackedhealthmakersachet.

Consignmentsales

Incomeformsapartofauxiliarysellingcommission

Crocin:Crocin isatrustedbrandofpainrelief tabletandalsohasvariants likeCrocinPain

Relief,CrocindropsandCrocinQuick.

Iodex:IodexisatrustedbrandinthetopicalbalmsegmentandispresentinIndiasince1919.

Therehavebeenrelaunchesofthisproductwithenhancedformulations.

Eno:EnoisaleadingantacidbrandinIndiaandispresentinsachets,bottlesandtablets.

Sensodyne:Sensodyneisatoothpastemarketedforindividualswithsensitiveteethand/or

dentinehypersensitivity.

Exports

GSK exports HFD products to Sri Lanka, Bangladesh, Nepal and the Middle East. Exports

contributed~6%

to

the

top

line

in

Q3CY11

and

management

expects

this

segment

to

grow

atover15%inthecomingquarters.

Auxiliarybusiness

has

astrong

brandequitybackedbydynamic

innovation


23/31

GSKConsumer


Keymanagementpersonnel

Mr. Simon Scarff (Non Executive Chairman) is a chartered accountant, company secretary

andL.L.B.HebeganhiscareeratHorlicksLimited,UK(nowaspartofGlaxoSmithKlineplc.).

He was initially responsible for marketing and sales of the companys products in Nabha,

Punjab in India in 1963. He was appointed as the Coordinator on the Consumer Brands

Business inNigeria in1974.Heservedas theRegionalGroupManger in1976,responsible

forthe

Middle

East,

initially

based

in

Cyprus

and

later

in

Dubai.

He

was

then

appointed

in

IndiaastheManagingDirectoron1stofJuly,1978andledthecompanytillOctober2002.

Mr.ZubairAhmed(ManagingDirector)hasbeenheadingtheConsumerHealthcarebusiness

in the Indian Subcontinent region, as Managing Director, since 1st January, 2007. Mr.

Ahmedhasarobustexperienceofthirtyyearsofexperienceintheconsumersector.Before

joining GSK Consumer Healthcare, he served as the Managing Director of Gillette India

Limitedwherehewasassociatedwithforover14years.Mr.Ahmedhasalsoworkedwith

leadingcompanieslikeVoltasandUnileverinthepast.

Mr.KunalKashyap(NonExecutiveDirector) isaCharteredAccountant.He iscurrently the

ChairmanandManagingDirectorofAllegroCapitalAdvisorsPvt.Ltd.,aleadingInvestment

Bank.

He

was

the

founder

and

executive

director

of

Celstream

Technologies

Pvt.

Ltd.,

a

leading software product engineering organization. He was a global partner at Arthur

Anderson between 1994 and 2000, when he was responsible for developing the firms

practiceinSouthIndia.HehasalsobeenresponsibleformanagingthetreasuryandBusiness

Development functions for Asia Pacific at Digital Equipment Corporation. Since March 28,

2001,hehasbeenaDirectorofthiscompany.

Mr.P.Dwarakanath(NonExecutiveDirector)workedasDirectorHumanResourceofGSK

ConsumerHealthcare tillJuly31,2006.Mr.Dwarakanathhasover34yearsofexperiencein

Engineering,Chemical,PharmaandConsumerGoodsIndustryinthecorefunctionalareasof

Legal, Employee Relations, Management Development, Leadership Development and HR

management.

Mr. Praveen Gupta (Director Operations)joined GSK Consumer Healthcare in 1975. Since

then he has held positions of increasing responsibility in Finance, Procurement, Materials

Management and Supply Chain Management. He was previously Site Director at Nabha

facilityandOperationalExcellenceCountryChampionforGMSConsumerHealthcare,India.

Intheseroleshehasmadesignificantcontributionstowardstheevolutionandperformance

of the Nabha site and has made significant successful Operational Excellence program in

India. Since January, 24, 2006, Mr. Praveen K Gupta is holding the position of Director

Operations of the Company. In this role he has made significant success in building up a

strategy aligned to business growth, strong performance and compliance culture and has

madesignificantcontributiontocostreductioninitiatives.

Mr. Ramakrishnan Subramanian (Director, Finance and IT)joined the company in 2006 as

DeputyCFOandthenworkedasDirector FinanceandITfromDecember2007.Hehasarich

experience of 35 years in consumer sector at several positions in Finance & procurement

functionsacrossseveralfoodcategoriesinHindustanUnileverLtd.

He headed the Food and Beverages division between 20002005 when he conceptualized

andimplementedseveralmeasurestowardscostreductionandprofitabilitygrowth.Lately,


24/31


25/31

GSKConsumer


FinancialOutlook

17.7%revenueCAGR(CY1113E)likelyonbrandequity,newlaunches

With the companys strong brand equity in the HFD category, continued pace of new

launches and increasing health consciousness amongst consumers, we are confident that

GSKwillpost17.7%revenueCAGRoverCY1113E.

Chart23:Robustrevenuegrowth


EBITDAmarginlikelytobestableoverCY1113E

WeexpectEBITDAmargintobestableoverCY1113E.Withhighinputcosts,thecompanyis

betterplacedonthepricingfrontcomparedtocompetitors.GSKhastakenpricehikesinthe

pasttooffsetinputcostinflationwithoutcompromisingonvolumes.

Chart24:EBITDAmarginstable


0.0

6.0

12.0

18.0

24.0

30.0

0

8,000

16,000

24,000

32,000

40,000

CY09 CY10 CY11E CY12E CY13E

(%)

(INRmn)

Revenue Revenuegrowth

15.0

16.0

17.0

18.0

19.0

20.0

0

1,500

3,000

4,500

6,000

7,500


(%)

(INRmn)

EBITDA EBITDAmargin

Weexpecttherevenuetogrowata

CAGRof17.7%overCY1113E

ExpecttheEBITDAmarginstobe

stable


26/31

ConsumerGoods


PATlikelytopost19%CAGRoverCY1113E

PAT is likely to post 19% CAGR over CY1113E on back of new product launches and

expansionofdistributornetwork.

Chart25:StrongPATgrowth


Strongbalancesheetcancreateopportunitiesforinorganicgrowth

A strong balance sheet with INR9.7 bn cash balance in CY10, steady operating cash flows

andnodebtgivesGSKtheabilitytopursueinorganicgrowthopportunitiesinthefuture.

0.0

7.0

14.0

21.0

28.0

35.0

0

1,100

2,200

3,300

4,400

5,500


(%)

(INRmn)

PAT PATgrowth

Weexpecttheprofittogrowata

CAGRof19%overCY1113E


27/31


GSKConsumer

FinancialStatements

Incomestatement (INRmn)

YeartoDecember CY09 CY10 CY11E CY12E CY13E

Netrevenues 19,215 23,061 26,975 31,795 37,567

Otheroperating

income 557 624 686 755 830

Total Operatingincome 19,772 23,685 27,661 32,550 38,397

Costofmaterials 7,140 8,649 10,477 12,183 14,281

Grossprofit 12,632 15,036 17,184 20,368 24,116

Employeecosts 2,007 2,297 2,630 3,100 3,663

Advertisement&salescosts 2,675 3,706 4,181 4,960 5,879

Others 4,327 4,668 5,328 6,280 7,401

EBITDA 3,623 4,365 5,045 6,028 7,173

Depreciation 420 397 449 521 589

EBIT 3,203 3,968 4,597 5,507 6,584

Otherincome 376 576 732 835 989

EBITincl.otherincome 3,579 4,544 5,329 6,342 7,573

Netinterest

&

Finance

charges 41 26 40 42 44

PBT 3,539 4,518 5,289 6,300 7,529

Provisionfortaxation 1,211 1,520 1,745 2,079 2,485

CorePAT 2,328 2,999 3,543 4,221 5,044

ProfitaftertaxafterMin.Int.&Associate 2,328 2,999 3,543 4,221 5,044

Equitysharesoutstanding(mn) 42 42 42 42 42

EPS(INR)basic 55.4 71.3 84.3 100.4 119.9

Dilutedshares(mn) 42 42 42 42 42

EPS(INR)fullydiluted 55.4 71.3 84.3 100.4 119.9

CEPS(INR) 36.6 44.6 53.4 63.3 74.9

DPS 18 50 34 40 48

Dividendpayoutratio(%) 33 70 40 40 40

Commonsizemetrics(%)


Costofmaterials 36.1 36.5 37.9 37.4 37.2

Employeecosts 10.2 9.7 9.5 9.5 9.5

Advertising&salescosts 13.5 15.6 15.1 15.2 15.3

Othergeneral expenditure 21.9 19.7 19.3 19.3 19.3

Depreciation 2.1 1.7 1.6 1.6 1.5

Netinterestexpenditure 0.2 0 .1 0.1 0 .1 0.1

EBITDAmargin 18.3 18.4 18.2 18.5 18.7

EBITmargin 16.2 16.8 16.6 16.9 17.1

Netprofitmargin 11.8 12.7 12.8 13.0 13.1

Growthmetrics(%)


Revenues 24.6 20.0 17.0 17.9 18.2

EBITDA 32.1 20.5 15.6 19.5 19.0

PBT 23.9 27.7 17.1 19.1 19.5

Netprofit 23.6 28.8 18.2 19.1 19.5

EPS 23.6 28.8 18.2 19.1 19.5


28/31


ConsumerGoods

Balancesheet (INRmn)

Ason31stDecember CY09 CY10 CY11E CY12E CY13E

Sharecapital 421 421 421 421 421

Reserves 8,630 9,180 11,065 13,310 15,994

Shareholders'funds 9,051 9,600 11,486 13,731 16,415

Sources

of

funds 9,051

9,600

11,486

13,731

16,415

Grossblock 5,585 5,990 7,090 8,090 8,990

Lessdepreciation 3,640 3,967 4,416 4,937 5,526

Netfixedassets 1,945 2,023 2,674 3,153 3,464

Capitalworkin progress 378 1,083 983 883 663

Investments 0 0 0 0 0

Currentassets 11,729 14,231 15,818 18,547 22,180

Inventories 2,660 3,120 3,373 3,967 4,677

Sundrydebtors 314 505 472 547 636

Cashand bankbalance 8,198 9,761 11,128 13,188 16,022

OtherCurrentAsset 220 344 344 344 344

Loansand advances 338 501 501 501 501

Current

liabilities

5,111

8,004

8,256

9,120

10,160

Liabilities 3,753 4,704 4,956 5,819 6,859

Provisions 1,358 3,300 3,300 3,300 3,300

Workingcapital 6,618 6,227 7,561 9,428 12,020

Miscexpenditure 110 267 267 267 267

Usesoffunds 9,051 9,600 11,486 13,731 16,415

BV(INR) 215 228 273 326 390

Freecashflow (INRmn)


Netprofit 2,328 2,999 3,543 4,221 5,044

Add:Noncashcharge (96) (201) 489 563 633

Depreciation 420

397

449

521

589

Others (517) (598) 40 42 44

Grosscashflow 2,231 2,798 4,032 4,784 5,678

Less:Changes in WC 1,481 299 33 194 241

Cashfromoperations 3,712 3,097 4,065 4,977 5,919

Less:Capex 409 1,110 1,000 900 680

Freecashflow 3,303 1,986 3,065 4,077 5,239

Cashflowmetric


Operatingcashflow 4,002 3,262 4,065 4,977 5,919

Financingcashflow (296) (905) (1,698) (2,017) (2,405)

Investingcash

flow (216) (1,110) (1,000) (900) (680)

Changein cash 3,491 1,247 1,367 2,060 2,834

Capex (409) (1,110) (1,000) (900) (680)

Dividendspaid (886) (2,452) (1,658) (1,975) (2,361)


29/31


GSKConsumer

Ratios


ROAE(%) 28.1 32.8 34.5 34.2 34.1

ROACE(%) 38.3 42.6 43.6 43.7 43.7

Debtordays 7 6 6 6 6

Inventorydays 52 46 46 46 45

Payabledays 71 80 80 80 80

Cashconversioncycle(days) (12) (28) (28) (28) (29)

Currentratio 2.3 1.8 1.9 2.0 2.2

Operatingratios


Total assetturnover 2.3 2.5 2.6 2.5 2.5

Fixedassetturnover 9.5 11.6 11.5 10.9 11.4

Equityturnover 2.3 2.5 2.6 2.5 2.5

Dupontanalysis


NPmargin

(%) 12.1

13.0

13.1

13.3

13.4

Total assetsturnover 2.3 2.5 2.6 2.5 2.5

Leveragemultipl ier 1.0 1.0 1.0 1.0 1.0

ROAE(%) 28.1 32.8 34.5 34.2 34.1

Valuationparameters


DilutedEPS(INR) 55.4 71.3 84.3 100.4 119.9

YoYgrowth(%) 23.6 28.8 18.2 19.1 19.5

CEPS(INR) 36.6 44.6 53.4 63.3 74.9

DilutedP/E(x) 45.4 35.2 29.8 25.0 20.9

Price/BV(x) 11.7 11.0 9.2 7.7 6.4

EV/Sales(x) 5.1

4.2

3.5

2.9

2.4

EV/EBITDA(x) 26.9 22.0 18.7 15.3 12.5

Dividendyield(%) 0.7 2.0 1.3 1.6 1.9


30/31


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

AsianPaints BUY SP M Colgate HOLD SU M

Dabur BUY SP M Emami BUY SO H

GodrejConsumer BUY SO H HindustanUnilever BUY SO L

ITC BUY SO L Marico BUY SO M

NestleLtd HOLD SP L UnitedSpirits BUY SP H

RATING&INTERPRETATION

ABSOLUTERATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVERETURNSRATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVERISKRATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTORRATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


31/31

GSKConsumer

EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.

Board:(9122)40094400,Email:[email protected]

VikasKhemani Head InstitutionalEquities [email protected] +912222864206

NischalMaheshwari CoHead InstitutionalEquities&HeadResearch [email protected] +912266233411

Coveragegroup(s)ofstocksbyprimaryanalyst(s):ConsumerGoods

AsianPaints,Colgate,Dabur,GodrejConsumer,Emami,HindustanUnilever,ITC,Marico,NestleLtd,UnitedSpirits

DistributionofRatings/MarketCap

EdelweissResearchCoverageUniverse

RatingDistribution* 119 47 15 184

*3stocksunderreview

MarketCap(INR) 111 57 16

Date Company Title Price(INR) Recos

Accessthe

entire

re ositor

of

Edelweiss

Research

on

www.edelresearch.com

RecentResearch

15Dec11 Consumer

Goods

MiddleIndiatodrive

consumptionstory;EdelFlash

08Dec11 Consumer

Goods

Cosmeticssetforamakeover;

EdelFlash

08Dec11 Consumer

Goods

Packingoffthevaluefor

moneydeal;EdelFlash

>50bn Between10bnand50bn

GSK Consumer - Analyst Report

Documents

Transcript of GSK Consumer - Analyst Report