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Inline result, PAT impacted by impairment

GlaxoSmithKline Pharmaceuticals Limited’s (GSKP) Q4FY21 results were broadly inline with our estimates. Revenue grew 4.9% YoY to Rs8.1bn (I-Sec: Rs8.2bn), EBITDA margin dropped 140bps YoY (-300bps QoQ) to 21.0% (I-Sec: 21.4%) while reported PAT declined 89.6% YoY to Rs143mn (I-Sec: Rs1.3bn). Lower than estimated PAT was due to impairment taken on Vemgal plant.

Recovery in its key brands and supported by recently launched products (Fluarix Tetra and Menveo) have supported the performamce. We expect this trend in recovery in the acute therapies to continue in the coming quarters. GSKP’s exposure only to domestic formulations, strong balance sheet and strong brand equity augurs well. Maintain ADD with a revised target price of Rs1,613/share.

* Inline performance:

Revenue grew 4.9% YoY during the quarter as acute therapies witnessed recovery with falling COVID-19 cases. Although, recent surge in cases may have some near term pressures we expect recovery in the growth to continue with traction in key brands supported by healthy growth in recently launched products (Fluarix Tetra and Menveo) especially with the ongoing vaccination. Gross margin dropped 540bps YoY on a very high base of last year but it was largely stable sequentially. Lower employee and S,G&A expenses cushioned the drop in EBITDA margin to 140bps YoY. Company has impaired Vemgal by Rs1.19bn to reflect the estimated realizable value of Rs1.8bn at which it is being sold to Hetero. Hence, reported PAT declined 89.6% YoY. Adjusting for it PAT fell 20.0% YoY to Rs1.0bn.

* Key products performance:

As per AIOCD data the GSKP has reported a flattish YoY performance. T-Bact, Betnovate N and Betnovate C have reported healthy YoY growth of 30.5%, 41.3% and 34.9% respectively for the quarter. However, Augmentin, Synflorix, Calpol and Betnesol have reported a YoY decline of 16.9%, 25.6%, 16.3% and 3.5% respectively. Infanrix Hexa continues its strong momentum with 10.1% YoY growth. Fluarix Tetra and Menveo are tracking well with revenue of Rs19mn and Rs61mn respectively during the quarter.

* Outlook:

While FY21 performance would optically appear muted, its due to Zinteac (ranitidine) sales in the base. However, we expect FY22 to report a strong growth both on revenue and earnings front. We expect 10.1% revenue and 24.2% PAT CAGR over FY21-FY23E driven by growth in power brands, traction in newly launched products and recovery in key therapies like vaccines, respiratory and VMN. Minimal capex requirement would aid cashflow generation of ~Rs16bn over the next two years.

* Valuations and risks:

We largely maintain our revenue estimates but raise our EPS estimates by 2-3% for FY22E-FY23E to factor in higher other income. Maintain ADD with a revised target price of Rs1,613/share based on 40xFY23E earnings (earlier: Rs1,575/share). Key downside risks: addition of key drugs in NLEM, product concentration and government intervention.

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