Vaccines remain a drag on the overall 2QFY23 performance

* GSK Pharma (GLXO) delivered an in-line performance in 2QFY23. The healthy progress in general medicines and specialty business segments was offset by reduced traction in the vaccines business.

* We maintain our earnings estimates for FY23/FY24. We value GLXO at 35x 12M forward earnings to arrive at our TP of INR1,420. We expect an 8% earnings CAGR over FY22-24 fueled by 5% sales CAGR and 130bp margin expansion.

* GLXO’s focus on core brands has yielded better-than-industry growth in its focus market of certain therapies. However, we maintain our Neutral rating on the stock due to limited upside (+7%) from the current levels.

Product mix benefit offset by higher promotional spends on a YoY basis

* GLXO’s revenue declined 2% YoY to INR9.2b (v/s est. of INR9.1b) in 2QFY23.

* Gross margin (GM) expanded 180bp YoY to 60.2% led by product mix.

* EBITDA margin improved marginally by 40bp YoY to 28% due to lower employee cost (-160bp YoY as a % of sales) offset by higher other expenses (+300bp YoY as a % of sales).

* EBITDA was flat YoY to INR2.6b (v/s est. of INR2.5b) during the quarter.

* Adj. PAT was stable YoY to INR1.9b for the quarter (our est. INR 1.9b).

* In 1HFY23, GLXO’s revenue was flat YoY while EBITDA/PAT grew 4% YoY each

Key result highlights

* The quarterly growth underlines the strong momentum across focus brands.

* During 1HFY23, GLXO launched its parent’s innovative product – Trelegy Ellipta – the first single-inhaler triple therapy (SITT), in India for Chronic Obstructive Pulmonary Disease (COPD) patients in a once-daily regime for patients aged 18 years and above.

* Secondary sales data from AIOCD indicates that Dermatology /Anti-Infective (~30%/~27% of overall sales) saw a ~20%/22% YoY growth in 2QFY23, respectively, driving the outperformance against IPM.

* T-Bact/ Neosporin in Derma therapy saw 32%/20% YoY growth, respectively. Augmentin grew 22% YoY in 2QFY23 according to AIOCD.

* Pain therapy (11% of sales) grew 11% YoY and Hormones therapy (8% of sales) rose 4% YoY during the quarter.

* Vaccines (~10% of sales) declined 27% YoY with Infanrix Hexa in vaccines exhibiting a modest 4 YoY growth in 2QFY23.

* GLXO delivered a modest volume growth of 1% and price hike of 6.3% YoY for the 12-month ending Sep’22 aided by a 1.8% growth from new launches.

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