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Superior execution and lower RM costs drive earnings Work

in progress to add new products to the offerings

* Glaxo Pharma (GLXO) delivered better-than-expected 1QFY25 performance. The robust growth in key brands, young potential brands, and vaccines aided by lower raw material costs led to higher-than-expected margins.

*  We raise our estimates by 3%/2% for FY25/FY26 to factor in: a) the sustained benefits of lower RM costs, b) improved scale-up in brands like Nucala, and Treligy, and c) strong volume off-take of Ceftum. We value GLXO at 47x 12M forward earnings to arrive at our TP of INR2,620.

* Despite an increase in the share of portfolio under NLEM, GLXO has shown healthy growth in respiratory brands, legacy brands (Augmentin, T-Bact, Calpol), as well as the vaccines segment. Accordingly, we model a 9% earnings CAGR over FY24-26. However, we believe that the current valuation adequately factors in the upside in the earnings. Reiterate Neutral.

Brand mix and operating leverage drive profitability

* GLXO’s revenue grew 7% YoY to INR8.1b (in line).

* Gross margin (GM) expanded 260bp YoY at 63.8%, due to a change in product mix and lower RM cost.

* Consequently, EBITDA margin expanded 940bp YoY to 28.3% (our est: 26.1%) fueled by higher GMs, and lower employee and other expenses (down 310bp and 370bp YoY as % of sales, respectively).

* EBITDA grew 60.2% YoY to INR2.3b (vs. est. of INR2.1b). ? Adj. PAT for GLXO grew 58.6% YoY to INR1.8b for the quarter (our est. INR1.7b).

Key highlights from the management commentary

* GSK witnessed strong volume traction in Ceftum.

* Field productivity improved 31% YoY. GSK realigned field force to focus on growth.

* Avg. price hike taken on Non-NLEM in the portfolio (ex-vaccine) was ~5%.

* Almost 800-1,000 patients benefited from treatment using Mucala.

* The clinical trial related to bepirovirsen would be completed by end-CY24.

* While the clinical trials are completed for Gepo, GLXO is assessing the economic prospects of the product in the Indian market.

* Calpol, Augmentin, and T-Bact delivered with 10% YoY growth and gained market share.

* The respiratory portfolio comprising Nucala and Trelegy delivered a growth of 57% for the quarter.

* The pediatrics vaccine segment delivered double-digit growth of 15% in 1Q.

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