Neutral GSK Pharma Ltd For Target Rs.2,170 by Motilal Oswal Financial Services Ltd
Flagship brands/innovative products drive operational performance
Launch of cancer drugs on the cards in 1HFY26
* GlaxoSmithKline Pharmaceuticals (GLXO) delivered a better-than-expected performance in 3QFY25, largely driven by robust volume growth in the general medicine segment and a continued scale-up in vaccine offtake. Notably, GLXO strengthened its market share in top brands like Augmentin, Ceftum and T-bact. It also expanded its presence for its respiratory products.
* We raise our earnings estimates by 2%/5%/7% for FY25/FY26/FY27 to factor in a) differentiated launches in cancer therapy, b) scale-up of vaccine business, c) enhanced efforts to boost vaccine prospects. We value GLXO at 33x 12M forward earnings to arrive at a TP of INR2,170.
* Compared to a 9% EBITDA CAGR over FY22-24, we expect GLXO to deliver a 19% EBITDA CAGR over FY25-27, driven by niche launches, market share gain, and enhanced reach. In addition to vaccines, GLXO would also be introducing innovative drugs to treat endometrial and ovarian cancer. However, the current valuation captures the earnings upside. Maintain Neutral.
Product mix and improved productivity boost margins YoY
* Revenue grew 17.9% YoY to INR9.5b (est: INR8.5b).
* Gross margin (GM) contracted 150bp YoY to 62.2%, due to a change in the product mix.
* There was a one-off gain of INR90m in employee expenses due to lower incentives for some brands.
* Adjusting the one-off item, EBITDA margin expanded 270bp YoY to 29.7% (our est: 29.2%) due to lower employee expenses (down 350bp YoY as % of sales), offset by higher other expenses (up 230bp as a % of sales).
* EBITDA grew 29.8% YoY to INR2.8b (vs. est. of INR2.5b).
* Adj. PAT grew 5.7% YoY to INR2.2b for the quarter (our est. INR1.9b).
* For 9MFY25, revenue/EBITDA/PAT grew by 10%/28%/20% YoY to INR27.7b/ INR8.4b/INR6.6b.
Key highlights from the management commentary
* GLXO would be launching two assets in the gyneac cancer segment (endometrial cancer and ovarian cancer) in India in 1HFY26.
* It is implementing efforts to build an ecosystem for adult vaccination through educating healthcare practitioners.
* GLXO is making efforts to sustain EBITDA margin going forward.
* The company reported volume growth of 11% YoY and price hike of 3% YoY for 3QFY25 in the general medicine category.
* Paed Vaccines portfolio grew 14% YoY, led by Boostrix, Varilrix, and Havrix.
* Field productivity improved by 27% during 9MFY25.
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