Reiterate Buy. GSK-CH witnessed an impressive 2QCY10; revenue and PAT grew 14.6% and 30% yoy respectively. We reiterate our Buy rating on the stock on the back of earnings CAGR of 27% over CY09-11e. n Steady revenue growth. GSK-CH registered revenue growth of 14.6%. The company hiked prices of all brands by 5% in January '10. The carry-over impact of price hike and the strong volume growth aidied in strong 2QCY10 revenues. n Lower ad spend improves margin. EBITDA margin was up72bps yoy. Lower ad spend-to-sales helped expand margin. However, the ad spend has sustained at Rs749m yoy. With higher milk prices, raw material-to-sales expanded 100bps yoy. Net profit is up 30% yoy, given lower effective tax rate. n Outlook. With reducing food inflation and lower crude oil prices, we expect raw material price concerns to ease in the coming quarters. Rising revenues of new products will help reduce the ad spend-to-sales. With all new launches witnessing favorable response, we expect the company to post strong revenue and earnings growths going forward. n Valuation. We retain Buy on GSKCH at target PE of 24x on CY11e earnings. Our target PE is at 50% premium to 12-month forward Nifty PE. We expect the premium to expand, with success of new launches. As this will also help remove the 'single product company' tag from GSK-CH. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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