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GlaxoSmithkline Pharma (GLXO) - Qtr. Update - Dtd. - February 19. 2013




Axis Capital Limited


19 Feb 2013





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GSK Pharma’s Q4CY12 revenue (Rs 6.6 bn; up 16% YoY) and adj. PAT (Rs 1.7 bn; up 10% YoY) were in line with our estimates. EBITDA margin was 100 bps lower YoY at 29% led by lower gross margins (57% vs. 59% in Q4CY11). We believe the impact on gross margin is due to INR depreciation (higher cost of imported materials while selling prices remain constant in domestic markets). Maintain SELL with target price of Rs 1,699 (19% downside from CMP) We maintain our negative stance on the stock: (a) EBITDA margin would remain under pressure due to INR depreciation and (b) highest potential risk from pricing policy in domestic formulations market (97% contribution to revenue, products sold at premium). Maintain SELL with TP of Rs 1,699 (16x CY14E EPS of Rs 106). At CMP of Rs 2,102, the stock trades at 23x CY13E EPS of Rs 90 and 20x CY14E EPS of Rs 106. Positive catalyst:  Introduction of more patented products from the product basket of parent company may lead to higher growth rate and ease off margin pressure  Post implementation of proposed pricing policy, GSK may benefit from favorable volume shift owing to better brand recall and connect with doctors Regards, Deepak Khetan (Asst VP – Life Sciences) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1132

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