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Muted 4QFY22; focus remains on key brands to revitalize growth

Slower offtake witnessed in the Vaccine segment

* GLXO delivered a lower-than-expected performance in 4QFY22. Subdued YoY growth in sales and higher raw material cost affected profitability.

* We lower our FY23/FY24 EPS estimate by 4% each, factoring in a gradual recovery in Vaccines and elevated operating costs. We expect 11% earnings CAGR over FY22-24, adjusting for the tax provisions for promotional expenses of earlier years.

* We value GLXO at 37x 12-months forward earnings to arrive at our TP of INR1,570. Considering the limited upside from current levels, we maintain our Neutral stance on the stock.

One-off tax provision leads to a quarterly loss

* Revenue was up 9% YoY to INR8.1b (est. of INR9.2b).  Gross margin remained flat YoY at 56.6% due to the product mix.

* EBITDA margin improved by 60bp YoY to 21.6% due to lower employee cost (-300bp YoY), which was partially offset by higher other expenses (+240bp as a percentage of sales).  EBITDA grew 11.8% YoY to INR1.8b (est. INR2.2b).

* The higher tax outgo in 4QFY22 was due to provision for disallowance of expenses incurred in preceding fiscals towards certain promotional spends, which is under litigation with the authorities, amounting to INR2b.

* GLXO incurred a 4QFY22 loss of INR547m (v/s our PAT estimate of INR1.7b). After the approval for the transfer of trademarks (‘Iodex’ and ‘Ostocalcium’ in India and other identified assets) to GSK Asia for INR13b (post-tax), the transaction was consummated, with receipt of the consideration in 4QFY22.

* Combining loss from continuing operations and PAT from discontinued operations, GLXO had PAT of INR12.2b in 4QFY22.

* Revenue/EBITDA/PAT grew 13%/28%/33% YoY in FY22 to INR32.8b/ INR7.6b/INR3.8b. Including PAT from discontinued operations, GLXO posted a PAT of INR17b in FY22.

Key takeaways

* Secondary sales data from AIOCD indicates that Pain therapy/Anti-Infective/ Dermatology (~12%/~25%/~28% of overall sales) saw a growth of ~39%/ 21%/5% YoY in 4QFY22, driving the outperformance against IPM. Calpol in Pain therapy saw ~63% YoY growth. Augmentin grew ~31% YoY in 4QFY22. T-Bact grew 15.1%, whereas Betnovate N/C brands declined by 5.1%/1.6%, reining back growth in Dermatology therapy.

* Vaccines (~11% of sales) dipped ~18% YoY, impacting overall 4QFY22 growth. Synflorix vaccine saw a decline of ~41% YoY in 4QFY22, majorly contributing to the decline in Vaccines.

* GLXO reported a volume growth of 6.6% and hiked prices by 6.1% YoY for the 12-month ending Mar’22, supported by 1.8% growth in new products.

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