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Sales growth/better operating leverage drive earnings

Aims to outperform industry; cost control to drive profitable growth

* GlaxoSmithKline Pharma (GLXO) delivered a better-than-expected performance in 4QYF24 on the back of market share gains in key brands, strong execution in the vaccine segment, and better profitability.

* GLXO delivered its highest quarterly growth rate in the past 12 quarters.  

* We raise our earnings estimates by 6%/8% for FY25/FY26, factoring in a) superior growth in the vaccine segment, b) increased offtake of specialty medicine, and c) a superior strategy in the general medicine category to better market share in the domestic formulation (DF) segment. Cost saving initiatives are expected to boost margins. We value GLXO at 43x 12M forward earnings to arrive at a TP of INR2,270.  

* GLXO is driving regional expansion and enhancing marketing efforts to boost growth in the DF segment. GLXO remains confident of delivering a strong performance in the vaccine business, including Shingrix. We maintain our Neutral rating on the stock, as the current valuation factors in the earnings upside adequately.  

Superior execution improves EBITDA margin by ~600bp YoY

* GLXO revenue grew by 18% YoY to INR9.3b (est. of INR8.7b).

* Gross margin (GM) expanded 430bp YoY to 60.5% due to a change in the product mix and lower RM costs.

* Consequently, EBITDA margin expanded by 610bp YoY to 27.7% (our est: 23.6%) due to higher GM, lower employee expenses and other expenses (30bp/-150bp YoY as % of sales).

* EBITDA grew by 51.6% YoY to INR2.6b (est. of INR2.1b).

* Adj. PAT grew by 56% YoY to INR1.9b for the quarter (our est. INR1.5b).

* During FY24, revenue/EBITDA/PAT grew by 6.2%/13%/20.5% YoY to INR34.5b/INR9.1b/INR7.3b.

 Key highlights from the management commentary

* GLXO aspires to deliver double-digit revenue growth over the next five years.

* It sees scope for margin improvement of 100-200bp over the next 12-24 months.

* While sales of shingrix dosages stood at 55k since May’23, it remains confident of selling 300k-500k dosages in the next five years.

* The share of generic medicine and vaccine is 80:20.

* Growth reflected in IMS was much lower than reported YoY growth for the quarter, partly due to higher sales from hospitals

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