1. GSK Consumer reported a robust 20.3% year-over-year growth in top-line to Rs648cr, beating estimates due to higher volumes, prices, and lower excise duty. However, margins contracted 149 basis points to 20.5% as the company reinvested gains into higher advertising. 2. Bottom-line growth was 14.6% year-over-year to Rs96cr, below expectations due to margin pressure and lower other income. 3. The analyst maintains a Neutral rating as valuations remain high despite revising estimates marginally upward, leaving little upside potential.

1. 1QCY2010 Result Update I FMCG
April 23, 2010
GlaxoSmithKline Consumer Healthcare NEUTRAL
CMP Rs 1,561
Performance Highlights Target Price -
GSK Consumer registered a robust Top-line growth of 20.3% yoy to Rs648cr, Investment Period -
significantly above our estimates of a 14% yoy growth to Rs615cr, supported
by higher volumes and price increases. Bottom-line (on a reported basis) Stock Info
registered a growth of 14.6% yoy to Rs97cr, below our expectation of a 22.4% Sector FMCG
yoy growth to Rs103cr, largely due to Margin contraction and 7.7% drop in
Other Income (on account of shift to lower yield Fixed Income products). Post Market Cap (Rs cr) 6,640
the 1QCY2010 results, we have revised our Top-line estimates for GSK
Beta 0.3
Consumer marginally upwards by 1-2% to factor in higher revenue traction in
its new product launches. Due to rich valuations at which the stock is currently 52 WK High / Low 1,590/715
trading, we maintain a Neutral view on the stock.
Avg. Daily Volume 10,383
Robust Top-line; Margins under pressure despite higher Operating leverage: Face Value (Rs) 10
GSK Consumer registered a robust Top-line growth of 20.3% yoy to Rs648cr BSE Sensex 17,694
(Rs539cr) aided by a 13% Volume growth, 5% Value growth (price hikes) and
2% growth through lower Excise Duty. On the Operating front, the company Nifty 5,304
registered Margin contraction of 149bp yoy to 20.5% (22%). The company Reuters Code SMTH.BO
re-invested its savings from the 19bp expansion in Gross Margins (despite
inflationary pressures in milk, sugar and wheat owing to high base yoy) and Bloomberg Code SKB@IN
higher Operating leverage into higher Ad-spends, which increased 62.2%
Shareholding Pattern (%)
yoy. The Bottom-line (on a reported basis) registered a growth of 14.6% yoy to
Rs96cr (Rs84cr) positively driven by Top-line growth and various cost Promoters 43.2
rationalization initiatives undertaken by the company, partially offset by
MF/Banks/Indian FIs 30.1
higher-than-expected Ad-spends to support new launches by the company.
FII/NRIs/OCBs 9.8
Outlook and Valuation: We continue to like GSK Consumer for its sustained 16.9
Indian Public
Volume growth in its Core brands, higher contribution from new Product
launches coupled with potential higher Dividend payout due to high Cash Abs. (%) 3m 1yr 3yr
balance (Rs820cr as on December 2009). However, at the CMP of Rs1,561,
the stock is trading at rich valuations of 20.2x CY2011E EPS of Rs77.2, at a Sensex 4.9 58.9 27.0
significant premium to its historical valuations leaving little room for upside or
negative surprises. Hence, we maintain our Neutral recommendation on the GSKCHL 17.6 109.6 206.1
stock.
Key Financials
Y/E Dec (Rs cr) CY2008 CY2009 CY2010E CY2011E
Net Sales 1,542 1,922 2,279 2,667
% chg 20.6 24.6 18.6 17.0
Net Profit 190 230 274 325
% chg 16.8 21.2 19.0 18.5
OPM (%) 15.4 16.2 16.1 16.4
EPS (Rs) 45.2 55.3 65.1 77.2
P/E (x) 34.6 28.2 24.0 20.2 Anand Shah
P/BV (x) 8.6 7.3 6.1 5.2 Tel: 022 – 4040 3800 Ext: 334
E-mail: anand.shah@angeltrade.com
RoE (%) 27.0 27.9 27.7 27.8
RoCE (%) 27.3 32.4 32.9 33.4
Chitrangda Kapur
EV/Sales (x) 4.0 3.0 2.6 2.1
Tel: 022 – 4040 3800 Ext: 323
EV/EBITDA (x) 25.7 18.5 15.9 12.9 E-mail: chitrangda.kapur@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. GSK Consumer I 1QCY2010 Result Update
Exhibit 1: 1QCY2010 Performance
Y/E Dec (Rs cr) 1QCY10 1QCY09 % chg CY2009 CY2008 % chg
Net Sales 648.4 539.0 20.3 1,921.5 1,541.8 24.6
RM Cost 256.1 213.9 19.7 710.6 585.9 21.3
(% of Sales) 39.5 39.7 37.0 38.0
Staff Cost 51.6 49.8 3.8 200.7 172.0 16.7
(% of Sales) 8.0 9.2 10.4 11.2
Advertising 98.2 60.6 62.2 302.1 194.0 55.7
(% of Sales) 15.2 11.2 15.7 12.6
Other Exp. 109.4 96.1 13.9 397.3 352.4 12.7
(% of Sales) 16.9 17.8 20.7 22.9
Total Exp. 515.4 420.3 22.6 1,610.7 1,304.2 23.5
Operating Profit 133.1 118.6 12.1 310.8 237.5 30.9
OPM (%) 20.5 22.0 16.2 15.4
Interest 0.6 1.2 (52.5) 4.2 5.3 (22.3)
Depreciation 9.6 10.6 (9.8) 42.0 42.0 0.2
Other Income 23.6 25.5 (7.7) 89.3 95.5 (6.5)
PBT(excl Ext. Items) 146.5 132.4 10.7 354.0 285.7 23.9
Extr Income/(Exp.) - - - -
PBT(incl Ext. Items) 146.5 132.4 10.7 354.0 285.7 23.9
(% of Sales) 22.6 24.6 18.4 18.5
Prov. for Taxation 50.3 48.5 3.8 121.1 97.4 24.3
(% of PBT) 34.4 36.6 34.2 34.1
Reported PAT 96.2 83.9 14.6 232.9 188.3 23.7
PATM (%) 14.8 15.6 12.1 12.2
Equity Shares (cr) 4.2 4.2 4.2 4.2
EPS (Rs) 22.8 19.9 14.6 55.3 44.7 23.7
Source: Company, Angel Research
New launches boost Top-line growth to 20.3% beating estimates: GSK Consumer
posted a robust growth of 20.3% yoy in Top-line to Rs648cr (Rs539cr) beating our
estimates of 14% yoy growth to Rs615cr, led by a 13% Volume growth, 5% Value
growth (price hikes) and 2% growth through lower Excise duty. While its core brands
Horlicks and Boost registered healthy Volume growths of 11% yoy and 21% yoy
respectively, we believe, the higher-than-anticipated growth in Top-line was on
account of improved traction in new launches (Women’s Horlicks, Horlicks Nutribar,
Actibase, Actigrow and Horlicks Foodles).
Re-investment in Ad-spend drags Margins, contract 149bp yoy: GSK Consumer
registered Margin contraction of 149bp yoy to 20.5% (22%) resulting in muted
EBITDA growth of 12.1% yoy to Rs133cr (Rs119cr). The company re-invested 19bp
expansion in Gross Margins (despite inflationary pressures in milk, sugar and wheat
owing to high base yoy) and higher Operating leverage (Staff costs down by 126bp
and overheads down by 99bp yoy) into higher Ad-spends, which increased 62.2%
yoy and 14.5% qoq on account of new product launches (entry into Noodles
Segment). According to management, Liquid Milk price increased by around 15%
yoy and 7-8% qoq, while Powder Milk price increased by around 7% yoy and
4-5% qoq for the quarter. While sugar prices have corrected by around 30% during
the quarter, we believe input cost inflation, particularly agri-commodities, remains a
challenge.
Bottom-line growth at 14.6% yoy, below estimates: Bottom-line for the quarter
registered a growth of 14.6% yoy to Rs96cr (Rs84cr), below our expectation of a
22.4% growth to Rs103cr, largely due to Margin contraction and 7.7% drop in Other
Income (on account of shift to lower yield Fixed Income products).
April 23, 2010 2

3. GSK Consumer I 1QCY2010 Result Update
Outlook and Valuation
Post the 1QCY2010 result we have marginally tweaked our numbers to factor in the
higher-than-anticipated Top-line growth of 20.3% (14%) yoy and the company’s
higher Ad-spend. Our Top-line estimates have been revised upward by 1-2% owing
to increased revenue traction in its new launches. Earnings estimates are revised
upwards by 1.2% to factor in higher Top-line growth and various cost rationalization
initiatives undertaken by the company since CY2009. However, Operating Margins
are likely to be under pressure yoy owing to the company’s heavy brand investments.
Exhibit 2: Revision in Estimates
Old Estimate New Estimate % chg
(Rs cr) CY10E CY11E CY10E CY11E CY10E CY11E
Revenue 2,254 2,611 2,279 2,667 1.1 2.2
OPM (%) 15.9 16.3 16.1 16.4 17bp 9bp
EPS 64.4 76.3 65.1 77.2 1.2 1.2
Source: Angel Research
We continue to like GSK Consumer for its sustained Volume growth in its Core
brands, higher contribution from new Product launches and potential higher
Dividend payout due to high Cash balance (Rs820cr as on December 2009).
However, at the CMP of Rs1,561, the stock is trading at rich valuations of 20.2x
CY2011E EPS of Rs77.2, at a significant premium to its historical valuations leaving
little room for upside or negative surprises. Hence, we maintain our Neutral view on
the stock.
Exhibit 3: 1-year forward P/E band
1,800 12x 15x 18x 21x
1,600
1,400
1,200
Share Price (Rs)
1,000
800
600
400
200
-
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Source: Bloomberg, Angel Research
April 23, 2010 3

4. GSK Consumer I 1QCY2010 Result Update
Exhibit 4: 1-year forward P/E Chart
30.0
25.0
20.0
15.0
10.0
5.0
-
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Source: Bloomberg, Angel Research; Note: Red-line indicates 5-year average
Exhibit 5: 1-year forward Premium to Sensex Chart
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Source: Bloomberg, Angel Research; Note: Red-line indicates 5-year average
April 23, 2010 4

5. GSK Consumer I 1QCY2010 Result Update
Profit & Loss Statement Rs crore
Y/E Dec CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E
Gross sales 1,210 1,396 1,700 2,025 2,418 2,830
Less: Excise duty 102 118 159 104 139 163
Net Sales 1,108 1,278 1,542 1,922 2,279 2,667
Other operating income - - - - - -
Total operating income 1,108 1,278 1,542 1,922 2,279 2,667
% chg 14.6 15.4 20.6 24.6 18.6 17.0
Total Expenditure 923 1,054 1,304 1,611 1,912 2,229
Cost of Materials 384 448 586 711 843 983
Advertising Exp 143 164 194 302 376 432
Personnel 135 155 172 201 228 267
Others 261 287 352 397 465 547
EBITDA 185 225 238 311 367 438
% chg 0.2 21.7 5.7 30.9 18.1 19.3
(% of Net Sales) 16.7 17.6 15.4 16.2 16.1 16.4
Depreciation& Amortisation 43 43 42 42 46 52
EBIT 142 181 196 269 321 386
% chg (0.3) 27.7 7.9 37.4 19.4 20.4
(% of Net Sales) 12.8 14.2 12.7 14.0 14.1 14.5
Interest & other Charges 4 5 5 4 4 4
Other Income 52 68 95 89 98 109
(% of PBT) 27.4 27.9 33.4 25.2 23.6 22.2
Share in profit of Associates - - - - - -
Recurring PBT 191 245 286 354 415 492
% chg 17.3 28.6 16.6 23.9 17.3 18.5
Extraordinary Expense/(Inc.) - - 1.63 (2.61) - -
PBT (reported) 191 245 284 356 415 492
Tax 64 82 96 124 141 167
(% of PBT) 33.4 33.6 33.5 35.0 34.0 34.0
PAT (reported) 127 163 188 233 274 325
Add: Share of associates - - - - - -
Less: Minority interest (MI) - - - - - -
PAT after MI (reported) 127 163 188 233 274 325
ADJ. PAT 127 163 190 230 274 325
% chg 18.5 28.2 16.8 21.2 19.0 18.5
(% of Net Sales) 11.5 12.7 12.3 12.0 12.0 12.2
Basic EPS (Rs) 30.2 38.7 45.2 55.3 65.1 77.2
Fully Diluted EPS (Rs) 30.2 38.7 45.2 55.3 65.1 77.2
% chg 18.5 28.2 16.8 22.5 17.7 18.5
April 23, 2010 5

6. GSK Consumer I 1QCY2010 Result Update
Balance Sheet Rs crore
Y/E Dec CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E
SOURCES OF FUNDS
Equity Share Capital 42 42 42 42 42 42
Share Warrants - - - - - -
Reserves& Surplus 501 604 719 863 1,029 1,226
Shareholders Funds 543 646 761 905 1,071 1,268
Minority Interest - - - - - -
Total Loans - - - - - -
Deferred Tax Liability 24 17 7 (11) (11) (11)
Total Liabilities 567 664 767 894 1,060 1,257
APPLICATION OF FUNDS
Gross Block 455 457 473 492 712 808
Less: Acc. Depreciation 270 298 329 364 410 462
Net Block 185 160 144 128 302 346
Capital Work-in-Progress 7 17 16 38 71 65
Goodwill 66 66 66 66 66 66
Investments 220 298 - - - -
Current Assets 772 371 853 1,173 1,175 1,398
Cash 48 94 471 820 744 899
Loans & Advances 550 55 62 56 71 88
Other 174 222 320 297 361 411
Current liabilities 683 249 312 511 555 619
Net Current Assets 89 122 541 662 620 779
Mis. Exp. not written off - - - - - -
Total Assets 567 664 767 894 1,060 1,257
Cash Flow Statement Rs crore
Y/E Dec CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E
Profit before tax 191 245 286 354 415 492
Depreciation 43 43 42 42 46 52
Change in Working Capital (3) (24) (58) 211 (38) (11)
Interest / Dividend (Net) (9) (20) (31) (20) (22) (23)
Direct taxes paid 64 82 96 124 141 167
Others (19) 27 (10) (5) 3 7
Cash Flow from Operations 139 188 133 458 264 349
Inc./ (Dec.) in Fixed Assets 18 25 29 41 254 90
Inc./ (Dec.) in Investments (220) (78) 298 0 0 0
Cash Flow from Investing (238) (103) 269 (41) (254) (90)
Issue of Equity - - - - - -
Inc./(Dec.) in loans - - - - - -
Dividend Paid (Incl. Tax) 42 41 31 89 108 128
Interest / Dividend (Net) (4) (2) (7) (20) (22) (23)
Cash Flow from Financing (38) (39) (24) (68) (87) (105)
Inc./(Dec.) in Cash (138) 46 377 349 (76) 155
Opening Cash balances 186 48 94 471 820 744
Closing Cash balances 48 94 471 820 744 899
April 23, 2010 6

7. GSK Consumer I 1QCY2010 Result Update
Key Ratios
Y/E Dec CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E
Valuation Ratio (x)
P/E (on FDEPS) 52.3 40.8 35.0 28.5 24.2 20.4
P/CEPS 39.1 32.2 28.6 24.2 20.7 17.6
P/BV 12.2 10.3 8.7 7.3 6.2 5.2
Dividend yield (%) 0.6 0.8 1.0 1.1 1.4 1.6
EV/Sales 5.9 5.1 4.0 3.0 2.6 2.2
EV/EBITDA 35.7 29.1 26.0 18.7 16.1 13.1
EV / Total Assets 11.6 9.9 8.0 6.5 5.6 4.6
Per Share Data (Rs)
EPS (Basic) 30.2 38.7 45.2 55.3 65.1 77.2
EPS (fully diluted) 30.2 38.7 45.2 55.3 65.1 77.2
Cash EPS 40.3 49.0 55.1 65.3 76.1 89.5
DPS 10.0 12.0 15.0 18.0 22.0 26.0
Book Value 129.0 153.7 180.9 215.2 254.6 301.4
Returns (%)
RoCE (Pre-tax) 26.5 29.5 27.3 32.4 32.9 33.4
Angel RoIC (Pre-tax) 30.7 42.1 45.7 94.3 108.6 75.8
RoE 24.9 27.4 27.0 27.9 27.7 27.8
Turnover ratios (x)
Asset Turnover (Gross Block) 2.4 2.8 3.3 3.2 3.9 3.3
Inventory / Sales (days) 48.0 55.6 65.6 50.5 49.7 48.7
Receivables (days) 9.3 7.8 10.2 6.0 8.1 7.6
Payables (days) 62.0 62.3 59.2 72.4 64.7 60.9
April 23, 2010 7

8. GSK Consumer I 1QCY2010 Result Update
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement GSKCHL
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
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CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
April 23, 2010 8