October 07, 2010
GLAXOSMITHKLINE PHARMACEUTICALS LTD SELL Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
Established in the year 1924 in India GlaxoSmithKline Pharmaceuticals Ltd (GSK) is one Strong Buy
of the oldest pharmaceuticals company. Its product range includes prescription medicines
and vaccines. The prescription medicines range across therapeutic areas such as anti-
infectives, dermatology, gynecology, diabetes, cardiovascular and respiratory diseases.
• GSK plans to launch at least two vaccines Infanrix Hexa and Synflorix in the next 12-18 Strong Buy – Expected Returns > 20% p.a.
months. The company can also put to advantage the strong pipeline of vaccines of the Buy – Expected Returns from 10 to 20% p.a.
Hold – Expected Returns from 0 % to 10% p.a.
parent company GlaxoSmithKline Plc. Reduce – Expected Returns from 0 % to 10% p.a. with possible downside
• In the dermatology segment, GSK is the market leader with a market share of 14%. Post
Sell – Returns < 0 %
the acquisition of Stiefel Laboratories; it would see launches in the area of cosmetology.
• The company plans to launch three Oncology drugs which includes Votrient (for renal
cancer) and Arzerra (for Leukemia) in CY10-CY11 which would have a market opportunity STOCK DATA
BSE / NSE Code 500660/ GSKPHARMA
of approximately Rs1bn. It also plans to launch Promacta by Q1FY11. Promacta is the first Bloomberg Code GLXO IN EQUITY
oral medication to increase platelet production for people with serious blood disorder. No. of Shares (Mn) 85
Sensex / Nifty 20,543/6,186
• It is a debt free company with a cash balance of Rs 17.33bn and is looking for acquisition PRICE DATA
of either company or brand that would add to the portfolio. CMP Rs (06th Oct'10) 2,286.0
• We expect GSK’s revenues to grow at a CAGR of 12.4% over CY2010-12 to Rs 27.08bn by Market Cap (Rs mn) 193,624
CY2012. We further estimate that the PAT would grow at a CAGR of 11.7% over CY2010- 52 Week High-low 2,349/1,425
Average Daily Volume 8,013
12 to Rs 7.35bn in CY2012 from Rs 5.89bn in CY2010. STOCK RETURN (%)
30D 3M 6M 1Y
• Based on a consolidated CY12 P/E multiple of 23, the fair value for the GSK Pharma 19% 7% 30% 51%
company works out to Rs 1996 Sensex 11% 17% 15% 21%
Nifty 11% 17% 15% 23%
Financial Snapshot SHARE HOLDING PATTERN (%)
Projections (Rs Mn) CY08A CY09A CY10E CY11E CY12E Promoter 50.7
Revenue 16,990 19,099 21,433 24,152 27,080 Non Institution 17.3
Y-o-Y Growth % 6.0% 12.4% 12.2% 12.7% 12.1% Total 100.0
EBIDTA 8,403 7,927 9,155 10,353 11,251 1 Year Price Performance (Rel. to Sensex)
Y-o-Y Growth % 1.4% -5.7% 15.5% 13.1% 8.7% 60
PAT 5,911 5,079 5,890 6,712 7,350 50 Sensex GSK
Y-o-Y Growth % 7.9% -14.1% 16.0% 14.0% 9.5% 40
EPS Rs 69.8 60.0 69.5 79.2 86.8
BVPS Rs 186.0 210.9 232.7 258.4 286.5
EBIDTA % 49.5% 41.5% 42.7% 42.9% 41.5%
NPM % 34.8% 26.6% 27.5% 27.8% 27.1% 10
ROE % 37.5% 28.4% 29.9% 30.7% 30.3% 0
PER x 32.9 28.8 26.3 -10
P/B Ratio 9.8 8.8 8.0 -20
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October 07, 2010
GlaxoSmithKline Pharmaceuticals is among the top-5 players in the Indian market with market share of approximately
5%. It derives 96% of its revenue from India and remaining 4% from the export of Bulk drugs and Formulations to countries
like Japan, Mexico, Indonesia, Korea and Jordan. It has two manufacturing units in India, located at Nashik and Thane as well
as a clinical development centre at Bangalore. The company’s product range includes prescription medicines and vaccines. Augmentin is currently
largest selling antibiotic
The prescription medicines range across therapeutic areas such as Anti-infectives, dermatology, gynecology, diabetes,
with sales of Rs 1.4bn
cardiovascular disease (CVS) and respiratory diseases. The company intends to focus on high growth segments such as CNS,
CVS and diabetology. GSK is currently the leader in the Dermatology category with 14% market share and key products such
as Betnovate, Zovirax, Zimig and Tenovate. The parent company has acquired Stiefel Laboratories and GSK India is expected
to benefit from it and is expected to launch products in the cosmetology.
In the Vaccines business, GSK offers a range of vaccines, for the prevention of hepatitis A, hepatitis B, invasive disease
caused by influenza, chickenpox, diphtheria, pertussis, tetanus and others. Rotarix, a vaccine for rotaviral diarrhea and
Cervarix, a vaccine for prevention of cervical cancer, was launched during the year.
In the OTC Segment, the company derives 4.5% of its revenue from the Brand Iodex which is manufactured by GSK
Pharmaceuticals and is distributed by GSK consumer Healthcare.
The Indian Pharmaceutical industry continues to remain under price control and currently 74 products are under price
control and currently 26% of the GSK revenues are under price control. The industry also faces suo moto drug price
reductions by the Government from time to time.
Revenue Segmentation Plc
Glaxo Group Ltd Horlicks Limited
GSK Asia Ltd.
Pharmaceuticals GSK Pharma GSK Consumer
92% (52%) HC (43%)
New products to drive future growth …
The company has plans to launch two vaccines namely Infanrix Hexa and Synflorix over next two years. GSK has also plans
For penetration led
to launch its novel products namely Promecta (blood platelet booster), Votrient (for renal cancer) and Arzerra (for
growth the company
Leukemia). All these products are likely to be future growth drivers for the company. The company is planning to upgrade plans to hire MRs and
its Nashik facility for which the company plans a capex of Rs 500-600mn over the next two years apart from the currently has a sales
maintenance capex of Rs 400mn every year. force of 3,000 MRs
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October 07, 2010
Lower sales growth...
For the 2QCY10, the net sales increased by only 9% to Rs 4.98bn due to lower sales of vaccines. The sales of vaccines
were impacted on account of constraints on supply. However, the availability of vaccines has improved by the end of New product launches since
quarter. Revenues from Pharmaceuticals business has increased by 12% during the quarter. With expansion in CY07 accounted for 1/3rd of
margins of the pharmaceuticals business, operating profit margins have improved 150 bps to 37.7%; resulting
operating profit to increase by 14% to Rs 1.91bn. EO expenses of Rs 106.2mn on the account of revised gratuity limits
and actuarial charge on post-retirement benefits restricted growth in net profit to 4% at Rs 1.29bn.
Quarterly Performance Revenue, Operating & PAT Margin
6000 70% 30,000 60%
5000 60% 25,000 50%
Revenues (Rs mn)
3000 15,000 30%
20% 10,000 20%
1000 10% 5,000 10%
CY07A CY08A CY9A CY10E CY11E CY12E
Net Revenue (Rs mn) EBITDA Margins
Revenue (Rs Mn) EBIDTA Margin PAT Margin
Peer Group Comparison
Revenue EBIDTA PAT Margin ROE P/E P/B CMP FV
(Rs. mn) Margin (%) (%) (%) (x) (x) (Rs.) (Rs.)
GSK Pharma 19099 42% 27% 28% 38.1 10.8 2286 10
Novartis 6239 29% 19% 19% 17.7 3.4 626 5
Pfizer 8089 27% 17% 13% 25.2 3.3 1103 10
Aventis Pharma 9748 27% 16% 18% 26.7 4.9 1935 10
GSK operates at robust margins. GSK commands a premium in valuation compared to its peers because of the
stable business model with a strong balance sheet position and profitability. The company is significantly ahead of
others MNC players in terms of its brand franchise and field force presence and has a strong product pipeline The stock trades at P/E of
support from the parent company. There is lower risk to GSK’s revenue and earnings vis-à-vis Indian generic 38.1 and is expensive on the
companies because the Indian generic companies operate across several geographies, giving rise to risk of valuation front.
exchange rates and regulatory actions while GSK pharma derives 96% of its revenues from the Indian market.
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October 07, 2010
We expect GSK’s revenues to grow at a CAGR of 12.4% over CY2010-12 to Rs 27.08bn by CY2012. We further
Based on a consolidated
CY12 P/E multiple of 23, the
estimate that the PAT would grow at a CAGR of 11.7% over CY2010-12 to Rs 7.35bn in CY2012 from Rs 5.89bn in
fair value for the company
CY2010. works out to Rs 1996
Based on a consolidated CY12 P/E multiple of 23, the fair value for the company works out to
We recommend a ‘SELL’ rating on the stock.
Financial Analysis and Projections
Particulars (Rs Mn) CY08A CY09A CY10E CY11E CY12E
Net Revenue 16,990 19,099 21,433 24,152 27,080
Other Income 3,100 1,816 2,042 2,042 2,042
Total Income 20,090 20,915 23,475 26,194 29,122
Operating Expenditure 11,688 12,988 14,320 15,841 17,871
Depreciation 163 164 222 249 270
EBIT 8,239 7,763 8,933 10,104 10,981
EBIT Margin (%) 48.5% 40.6% 41.7% 41.8% 40.6%
Interest 5 4 3 3 2
Profit Before Tax 8,234 7,760 8,930 10,101 10,979
Less: Tax 2,323 2,681 3,041 3,389 3,628
PAT 5,911 5,079 5,890 6,712 7,350
PAT Margin (%) 34.8% 26.6% 27.5% 27.8% 27.1%
ROE (%) 37.5% 28.4% 29.9% 30.7% 30.3%
EPS (Rs) 69.8 60.0 69.5 79.2 86.8
BVPS (Rs) 186.0 210.9 232.7 258.4 286.5
Valuation Ratios (x) CY10E CY11E CY12E
P/E 32.9 28.8 26.3
P/B 9.8 8.8 8.0
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October 07, 2010
Board of Directors
Director Name Current Position Description
Mr. Deepak S. Parekh Chairman Mr. Deepak S. Parekh serves as Non-Executive Independent Chairman of the Board of Glaxosmithkline Pharmaceutical Limited.
Mr. V. Thyagarajan Vice Chairman Mr. V. Thyagarajan serves as Non-Executive Vice Chairman of the Board of Glaxosmithkline Pharmaceutical Limited.
Dr. Hasit B. Joshipura serves as Managing Director and Executive Director of Glaxosmithkline Pharmaceutical Limited. Dr. Joshipura is a
graduate in Electrical Engineering from VJTI - Bombay University and a Post Graduate from the Indian Institute of Management -
Ahmedabad. He has completed his Doctorate programme at the School of Management at lIT Mumbai. After having spent about three
years with Tata Administrative Services, Dr. Joshipura spent about 16 years with the Unilever Group of companies in India and held
positions of increasing responsibility in commercial, sales, marketing and business management functions. He joined the
pharmaceutical business of Johnson & Johnson Limited as President & Executive Director in October 2001. Dr. Joshipura was the Chair
Dr. Hasit B. Joshipura Managing Director
person for the Corporate Contributions Programme, as well as the lead for Government Affairs for the Johnson & Johnson group of
businesses in India. In October 2006, Dr. Joshipura was appointed Vice President and General Manager designate India, Bangladesh and
Sri Lanka and took over as Managing Director of the Company from lS January 2007. He is an Executive Committee Member of the
Organisation of Pharmaceutical Producers of India (OPPI) and has been nominated by the Board of Governors of VJTI to their Senate.
Dr. Joshipura is a Director of Biddle Sawyer Limited which forms a part of the GlaxoSmithKline Group Companies in India and is a
member of the Investors/Shareholders Grievance Committee of the Company.
Mr. R.R. Bajaaj serves as a Non-Executive Independent Director of Glaxosmithkline Pharmaceutical Limited. Mr. Bajaaj is a graduate in
Science and Law. He joined Mahindra & Mahindra Limited as Management Trainee in 1964. He then moved on to Otis Elevator
Company (India) Limited in their Field Operations Department in 1967 and held a series of increasingly senior roles within that
Company including Head of Northern Regional Operations, Country Head for Middle East and South East Asia countries. Mr. Bajaaj
returned to India as Managing Director of Otis Elevator Company (India) Limited in 1989. In 2000, he was appointed as Vice-President
Mr. R.R. Bajaaj Independent Director
South and South East Asia operations based in Singapore. In 2001, he took up international assignment with an NGO Special Olympics
Inc. as Managing Director, Asia Pacific. In 2006, he entered into a Joint Venture with the Consulting Firm for Vertical Transportation,
Lerch Bates which is Head quartered in Denver, U.S. He is a Director of the Company since October 2002 and is member of the Audit
Committee and Investor/Shareholders Grievance Committee. He is also a Director in HDFC Asset Management Company Limited and in
APW President Systems Limited.
Dr. A. Banerjee serves as Executive Director - Technical, Director of Glaxosmithkline Pharmaceutical Limited. Dr. Banerjee is a Ph.D. in
Executive Director - Organic Chemistry and has carried out post-doctoral research at Glasgow University. He joined the Company as a Management Trainee
Dr. A. Banerjee
Technical and has held various increasingly senior positions in the manufacturing and technical functions. Dr. Banerjee is a Director of Biddle
Sawyer Limited which forms part of the GlaxoSmithKline Group Companies in India.
Mr. M.B. Kapadia serves as Senior Executive Director - Finance, Corporate Communications, Secretarial & Administration, Director of
Glaxosmithkline Pharmaceutical Ltd. He is a member of the Institute of Chartered Accountants of India and of the Institute of Company
Secretaries of India. He has been in the service of the Company since May 1987 and has held increasingly senior positions in the
Executive Director -
Mr. M.B. Kapadia Finance and Secretarial functions. He was elevated to the Board in 1996. He is currently Senior Executive Director in charge of Finance,
Company Secretarial, Corporate Communications and Administration. He has total work experience of 25 years. Mr. Kapadia is a
Director of Biddle Sawyer which forms part of the GlaxoSmithKline Group Companies in India and is member of the
Investor/Shareholders Grievance Committee.
Mr. Nihal Vijaya Devadas Kaviratne, CBE., serves as a Non-Executive Independent Director of Glaxosmithkline Pharmaceutical Limited.
Mr. Kaviratne has an Honours degree in Economics from Mumbai University. His global career with Unilever spanned 40 years. He
joined them in India as a Management Trainee in 1966, and held a series of increasing senior roles including Head of Marketing
Research and Economics and General Manager of Export Division. In 1984 he moved as Managing Director of the Detergents Division in
Indonesia, and later became Regional Leader for Latin America and South Asia at Corporate Headquarters in London, Managing
Director in Argentina, and Chairman in Indonesia. He was appointed Senior Vice President - Development and Environmental Affairs,
Mr. Nihal Vijaya Devadas Unilever Asia, based in Singapore and Chairman of Unilever’s Home and Oral Care businesses in Asia. He was awarded the CBE for
Kaviratne services to UK business interests and for sustainable development in Indonesia. He is a Director of the Company since July 2005. Mr.
Kaviratne is a Director of Titan Industries Limited, Agro Tech Foods Limited and Fullerton India Credit Company Limited. He is also
Chairman of TVS Indonesia, and Director of StarHub Limited, TVS Motor Company (Europe) BV The Netherlands and of Wildlife Reserves
Singapore. He is the Chairman of the Audit Committee of Titan Industries Limited and a Member of the Audit Committee of Agro Tech
Foods Limited, Fullerton India Credit Company Limited and StarHub Limited. Mr. Kaviratne is a Member of Investor Grievance
Committee of Agro Tech Foods Limited. He is a Founding Member of the Executive of APABIS (Asia Pacific Academy of Business in
Society), Founder of St. Jude India ChildCare Centres, and is Vice Chairman of the Indian Cancer Society.
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October 07, 2010
Board of Directors (Contd)
Mr. P.V. Nayak serves as Non-Executive Independent Director of Glaxosmithkline Pharmaceutical Limited. Mr. Nayak joined the
Company in 1989 and was elevated to the Board in 1992. At the time of his retirement from service on 30th September 2003, he was
Senior Executive Director in charge of Human Resources, Legal and Licensing, Corporate Communications, Administration and Agrivet
Farm Care business. Earlier, he was also in charge of the Qualigens Fine Chemicals business. He was appointed as Non-Executive
Mr. P.V. Nayak Independent Director Director of the Company from 9th October 2003. At present, he holds 576 shares of the Company. Mr. Nayak is a Director of Siemens
Limited, Siemens Healthcare Diagnostics Limited, Virbac Animal Health India Private Limited and Fortis Trustee (India) Private Limited.
He is the Chairman of the Investor Grievance Committee and a Member of Audit Committee of Siemens Healthcare Diagnostics
Limited. Mr. Nayak is a Member of the Investor Grievance Committee of Siemens Limited.
Mr. V. Narayanan serves as Non-Executive Independent Director of Glaxosmithkline Pharmaceutical Limited. Mr. Narayanan has more
than 48 years of experience in Management. He joined Hindustan Lever Limited as a Management Trainee and held several positions in
that company both in India and in the U.K. Subsequently he joined Pond’s (India) Limited and was its Chairman and Managing Director
for over 15 years. He is a Director of the Company since May 1995. Mr. Narayanan is the Chairman on the Board of M M Forgings Limited
and Pond’s Exports Limited and is a Director of Samtel Colour Limited, Hindustan Unilever Limited, Sundram Fasteners Limited, UCAL
Mr. V. Narayanan Independent Director
Fuel Systems Limited, Samcor Glass Limited, Tamilnadu News Print & Papers Limited, Rane Holdings Limited, Rane (Madras) Limited and
Bata India Limited. He is also a Director of Lafarge India Private Limited. Mr. Narayanan is the Chairman of the Audit Committee of M M
Forgings Limited, Bata India Limited, UCAL Fuel Systems Limited and Tamilnadu News Print & Papers Limited and a Member of the
Audit Committee of Rane (Madras) Limited and Sundram Fasteners Limited. He is also a Member of the Remuneration Committee of
Bata India Limited and Hindustan Unilever Limited.
A. M. Nimbalkar Independent Director A. M. Nimbalkar currently serves as an Independent Director in the board of GlaxoSmithKline Pharmaceuticals Ltd
Mr. D. Sundaram is Non-Executive Independent Director of GlaxoSmithKline Pharmaceuticals Ltd., since July 27, 2009. He is a
Commerce Graduate with a Post Graduate in Management Studies from Chennai. He is a fellow of the Institute of Cost and
Management Accounts and has attended the Advanced Management Programme at Harvard Business School. Mr. Sundaram joined
the Unilever group in India as Management Trainee in 1975 and has held increasingly senior roles within the Unilever group including
Accounting, Commercial and Treasury at Mumbai, Finance Officer at Unilever (London) for Africa and Middle East Region, Finance
Director and Board Member of Brooke Bond Lipton India Limited and Senior Vice-President (Finance), South Asia and Middle East
Mr. D. Sundaram Independent Director Group based at London. Mr. Sundaram was appointed as Finance Director and Board Member of Hindustan Unilever Limited and
subsequently elevated to Vice-Chairman and was also responsible for Pakistan, Bangladesh and Sri Lanka. Mr. Sundaram was awarded
CFO of the year for the FMCG sector by CNBC TV 18 in 2006 and 2009. He has joined TVS Capital Funds Limited as Vice-Chairman and
Managing Director from 10 th July 2009. He is an Independent Director on the Board of State Bank of India, SBI Capital Market, TVS
Electronics Ltd and Member of the Board of Governors of Institute of Financial Management and Research, Chennai. He is the Chairman
of the Audit Committee of SBI Capital Market Ltd. He is a Member of Audit Committee of TVS Electronics Ltd and a Member of the
Investor Grievance Committee of State Bank of India.
Mr. Ronald C. Sequeira serves as a Executive Director - Human Resources, Director of Glaxosmithkline Pharmaceutical Limited. Mr.
Sequeira is an alumni of Loyola College, Chennai and XLRI, Jamshedpur and has 26 years of experience in the field on Human Resources
with multinational companies in India. He began his HR career in 1984 as a Management Trainee with Union Carbide India Limited and
gained employee relations experience in various positions. He was appointed Personnel Manager in 1990. In 1992, he moved to the
Executive Director - HSBC Bank where he handled HR for East and West India and headed Resourcing and Development and later he was appointed HR
Mr. Ronald C. Sequeira
Human Resources Manager Asia Pacific, based in Hong Kong. Mr Sequeira has also held the position of Head of Compensation and Employee Relations
with HSBC, India. Mr. Sequiera joined Tata Power Company in 2004 as VP and Head of Human Resources with additional charge for the
Company’s Corporate Social Responsibility function. He was also on the Tata Group’s HR steering Committee. He is a Director of Biddle
Sawyer which forms part of the GlaxoSmithKline Group Companies in India. He is also a Director in Hill Properties Limited.
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