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Analyst call highlights

GlaxoSmithKline Pharmaceuticals (GSKP) held an analyst meet to discuss the company’s performance. Highlights:

* Company believes its key brands and therapies would continue to grow. It has been able to maintain its market share in key brands and expects to improve on it gradually. GSKP intends to provide healthcare support to 2.5bn people worldwide over the next 10 years, wherein India would be an integral part.

* Vaccines remains an important growth area. The segment contributes ~22% of revenue and is expected to grow on the back of new launches. The vaccines are imported and have lower margin than the company average, but it would be supported by cost optimisation.

* GSKP does not participate in the National Immunisation Programme (NIP). Due to the growing popularity of NIP, private market demand is shrinking, which has impacted sales of Synflorix. However, launch of Shingrix by the end of H1CY23 will help the segment grow. Currently, GSK has received approval for the indication for people age ≥50 years. GSK plans for 8-10 months in advance for a launch to maximise outcome.

* Company has recently launched Trelegy (inhaler) with device, which has to be administered once a day. It will be used to treat COPD. Fluarix Tetra is tracking well post normalisation of the environment. Nucala (for treatment of severe eosinophilic asthma) is also gaining traction, but the patient pool is limited, which in turn limits the market potential of the drug.

* Apart from vaccines, immunology and oncology are the growth areas targeted by GSK. Company believes the global pipeline will deliver products relevant to India, which will be launched in due course of time. Seperation of the pharma and consumer businesses was done at the global level and GSK India no longer has any OTC products.

* Company has witnessed normalisation of the dermatology market and expects the segment to grow at >8-9%.

* Currently, GSKP services 150-160 towns and the strategy is to launch products selectively focusing on improving MR productivity rather than adding more manpower. Also, it refrains from advertising, but believes in campaigning for disease awareness.

* GSKP is confident of maintaining its current margins. Raw material cost inflation is high, but the company has long-term contracts while its ability to take price hikes will cushion the inflationary impact. Q1FY23 witnessed revenue growth of 12% YoY (6% price and volume each) after adjusting for the high base of Calpol and divested products. Employee costs are also in check with efficient resource allocation and improving productivity. WPI-led price hike of 8-10% will flow in by the end of the year

Valuations and risks:

GSKP’s exposure only to domestic formulations, strong balance sheet and strong brand equity augur well for the stock. However, we expect the acute therapies to grow at a moderate pace (on a high base) in the coming quarters and we believe the current valuations capture this growth potential. Maintain HOLD with a target price of Rs1,456/share based on 38x FY24E EPS. Key downside risks: Addition of key drugs in National List of Essential Medicines (NLEM). Key upside risks: Faster-than-expected growth in brands and swift recovery in vaccine segment.

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