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GlaxoSmithKline Consumer Healthcare Equity Research

HomeCompanyGlaxoSmithKline Consumer Healthcare Equity Research

Date of Research – 27 January 2016

Price – Rs. 5640.35

About the Company

Incorporated in 1958, GlaxoSmithKline Consumer Healthcare Limited (“GSK Consumer” or the “Company“) is engaged in the business of nutritional health drinks, over the counter medicines, and oral care products. The Company is an Indian associate of GlaxoSmithKline plc, U.K. The Company product range includes health food drinks, choco-malt drinks, nutritional supplements, and biscuits under the brands Boost, Viva, Maltova, and Horlicks. The Company’s over-the-counter medicines include Crocin, Eno and Iodex and its oral care product includes Sensodyne toothpastes, toothbrushes, mouthwash and dental floss.

GSK Consumer has a strong distribution and marketing network in India comprising over 4,800 wholesalers and direct coverage of over 7,00,000 retail outlets. The Company’s manufacturing plants are located in Nabha (Punjab), Rajahmundry (Andhra Pradesh), and Sonepat (Haryana). The Company exports its products to Bangladesh, Sri Lanka, the Middle East, Nepal, Myanmar, Malaysia, Nigeria, Kenya, and Pakistan.

The Accounting year of the Company has been changed from January-December to April-March. Accordingly, financial statements of Company for FY 2014 are for a period of fifteen months, from January 01, 2013 to March 31, 2014. These figures, therefore, are not comparable with those of the previous year ended December 31, 2012.

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 3,187.50 4,868.58 4,307.59  4,308.73  4,421.09 
Expenses 2,614.09 3,995.80 3,577.51  3,473.85  3,654.56  

Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)

573.41 872.78 730.08  834.88  766.53  
Depreciation 36.08 62.55 62.09  57.44  – 
Finance Costs 2.42 1.05 0.74  0.79  – 
Other income 113.79 206.91 221.89  278.74  243.88  
PBT 648.70 1,016.09 889.14  1,055.39  1,010.41  
Tax 211.93 341.33 305.54  368.48  353.74  
PAT (before Minority Interest and share of Associates) 436.77 674.76 583.60  686.91  656.67  

Profitability Analysis

Standalone (%)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 17.99 17.93 16.95  19.38  17.34 
Net Profit Margin Ratio 13.70 13.86 13.55  15.94  14.85

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Share Capital 42.06 42.06 42.06 42.06   42.06 
Reserves & Surplus 1,102.12 1,318.92 1,770.79 2,070.98   2,403.58 
Net worth (shareholders funds) 1,144.17 1,360.98 1,812.85 2,113.04   2,445.63 
Current liabilities 877.56 1,105.23 1,476.60 1,688.98   1,815.28 
Other long term liabilities and provisions 60.73 88.28 122.02 217.53   237.89 
Total Liabilities 2,082.46 2,554.49 3,411.47 4,019.55   4,498.80 


Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Fixed Assets 349.85 391.07 378.36 534.06   537.36 
Current assets 1,642.29 2,057.13 2,753.93 3,305.42   3,756.04 
Long term advances and other noncurrent assets 50.43 44.66 188.88 75.74   92.93 
Deferred Tax Assets 39.89 61.63 90.30 104.34   112.47 
Total assets 2,082.46 2,554.49 3,411.47 4,019.55   4,498.80 

Efficiency Analysis

Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
ROCE 44.59 42.13 48.14 34.55   34.14 
ROE / RONW 31.05 32.09 37.22 27.62   28.09 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 3,187.50 4,868.58 4,307.59 4,308.73  4,421.09 
Growth (%) 15.04 % 52.74 % (11.52 %)  0.03 %  2.61 % 
PAT (Rs. Cr.) 436.77 674.76 583.60  686.91  656.67  
Growth (%) 22.96 % 54.49 % (13.51 %)  17.70 %  (4.40 %) 
Earnings Per Share – Basic (Rs. ) 103.85 160.44 138.77  163.34  156.15 
Earning Per Share – Diluted (Rs. ) 103.85 160.44 138.77  163.34  156.15
Price to Earnings 36.83 26.51 45.40  36.95  34.26 

Dividend History

The Company has maintained an average dividend yield of 1.33 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. GSK Consumer’s average current ratio over the last 4 financial years has been 1.70 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

GSK Consumer’s average long term debt to equity ratio over the last 4 financial years has been 0.00 which indicate that the Company is operating with a Zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

GSK Consumer’s average interest coverage ratio over the last 4 financial years has been 161.10 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, GSK Consumer reported a promoter holding of 72.46 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 12.57 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.


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