Investor's Eye
[November 26, 2012] | | |
| Summary of Contents STOCK UPDATE GlaxoSmithKline Consumer Healthcare
Recommendation: Buy
Price target: Under review
Current market price: Rs3,652 Promoter to raise stake with generous open offer Key points -
GSK Group to increase its stake to 75% in GSK Consumer: GlaxoSmithKline Pte (GSK) along with Horlicks and GSK Plc has made a voluntary open offer to acquire the 1.34 crore shares (31.84% of share capital) of GlaxoSmithkline Consumer Healthcare (GSK Consumer) at a price of Rs3,900 per share (28% higher than the November 23, 2012, closing price). With this, GSK Group's (the promoter group) stake in GSK Consumer will go up to 75% from 43.16% currently. At the open offer price of Rs3,900, GSK Consumer is valued at 32.6x its CY2013E earnings. -
GSK Consumer on a steady growth path: GSK Consumer has a strong positioning in India's malted food drinks (MFD) market, with a market share of close to 70%. The company's strong pricing power in the domestic MFD segment, improving distribution reach and increasing demand for health and nutritional products in India helped its top line and bottom line to grow at a compounded annual growth rate of 19% and 22% over CY2006-11. Also, the non-MFD products of GSK Consumer, such as Horlicks Biscuit and Horlicks Oats, gained a good acceptance and are growing strongly in the domestic market. -
GSK Plc wants to enhance focus in the world's fastest-growing markets: GSK Plc wants to enhance its focus on investing in the world's fastest-growing emerging markets. In line with this strategy, the company is planning to enhance its stake in its Indian business unit to 75% and the Nigerian business unit to 80% (from existing 46.14%). Also, it will offer a liquidity opportunity at an attractive premium for the existing shareholders. The potential value of the transaction at the offer price is approximately Rs5,220 crore, which will be funded through GSK Plc existing cash resources. -
Outlook and valuation: With a low penetration of the MFD segment in India and GSK Consumer's strong pricing power and opportunity to grow in the northern and western regions in India, we expect GSK Consumer's core business to maintain the strong growth momentum in the coming years. Further, the company's enhanced focus on building its non-MFD portfolio (includes biscuits and oats) would improve the growth prospects in the long run.
The voluntary open offer announcement acted as an additional trigger for the stock price to shoot up by 20% in today's trading (November 26, 2012). With its business fundamentals intact and the open offer price of Rs3,900 per share, the company's stock price could receive a further boost in the near term. Hence, we maintain our Buy recommendation on the stock with the price target under review. At the current market price the stock is trading the 30.5x its CY2013E earnings per share (EPS) of Rs119.7 and 26.4x its CY2014E EPS of Rs138.2.
SHAREKHAN SPECIAL Monthly economy review Economy: industrial growth remains subdued; trade deficit worsens to $21.0 billion -
The Index of Industrial Production (IIP) in September 2012 declined by 0.4% year on year (YoY). The lower than expected growth in the IIP was primarily due to a 12.2% decline in the capital goods segment coupled with a 1.5% drop in the manufacturing segment due to a high base effect. Moreover, the IIP growth for August was revised to 2.3% from 2.7% as per provisional estimate. For year-till-date (YTD) FY2013, the IIP growth stood at 0.1% vs 5.1% in the previous year. -
The Wholesale Price Index (WPI)-based inflation came at 7.45% (lower than the market's expectation) in October 2012 as against 7.81% in September 2012. The month-on-month (M-o-M) decline in inflation was due to a decline in the primary articles and manufactured goods inflation. However, the inflation rate for August 2012 was sharply revised to 8.01% from the provisional estimate of 7.55%. -
India's trade deficit worsened the most in October 2012, in at least 17 years, as it widened to $21.0 billion from $18.1 billion in September 2012 due to an overall rise in imports on the back of higher purchase of crude oil coupled with a decline in exports. The trade deficit increased by 19.5% YoY. The exports decreased by 1.63% YoY (down 10.8% in September 2012) to $23.24 billion, while the imports increased by 7.37% YoY (up 5.1% in September 2012) to $44.20 billion. Banking: CRR slashed by 25 basis points; higher provisions for restructured loans to hurt banks -
During the Q2FY2013 monetary policy review, the Reserve Bank of India (RBI) reduced the cash reserve ratio (CRR) by 25 basis points to 4.25% but kept the policy rates unchanged. Moreover, the RBI increased the provisioning on the standard restructured loans to 2.75% from 2%, in line with the recommendations of the Mahapatra Committee on loan restructuring. According to the RBI, the inflation rate could moderate towards the beginning of Q4FY2013 which could trigger monetary easing. -
The credit offtake registered a growth of 16.2% YoY (as on November 2, 2012), which was higher than the 15.9% year-on-year (Y-o-Y) growth recorded in the previous month (as on October 5, 2012). The credit growth was broadly in line with the RBI's guidance of 16.0%. -
The deposits registered a growth of 13.7% YoY (as on November 2, 2012), which was lower than the 13.9% Y-o-Y growth recorded in the previous month (as on October 5, 2102). The growth in the deposits has been subdued due to the higher yields offered by the other debt instruments. However, the growth in deposits is below the RBI's guidance of 15.0%. -
A slower growth in deposits compared with the advances remains a concern for the banks. Consequently, the credit-to-deposit ratio for the banks increased to 76.0% in YTDFY2013 from 73.9% during the same period of the previous year. -
The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.23% as on November 22, 2012, the highest in 12 weeks. Moreover, the five-year and ten-year G-Sec yields rose by nine to ten basis points on an M-o-M basis. The increase in the yields is due to the fear of widening fiscal account deficit over apprehensions on decrease in the non-tax revenues (2G auctions and disinvestment proceeds). Equity market: FIIs remain net buyers
During the month-to-date (MTD) period of November 2012 (November 1-24, 2012), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period of November 2012 (November 1-24, 2012), the FIIs bought equities worth Rs5,441 crore while the mutual funds sold equities worth Rs1,075 crore.
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| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | | | |
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