Reco price: Rs 1,580
Current market price: Rs 1,649.65
Target price: Rs 1815
Upside: 10%
Brokerage: Religare, Hitchens & Harrisons
GSK Pharma launched five products (including one vaccine – Cervarix) in CY09. The vaccine portfolio has seen a positive surprise in terms of demand. Going ahead, the company is expected to launch 6–8 products per year. Some of these will be positioned in the niche segment. In addition to the in-house product range, the company will have access to the dermatology portfolio of Stiefel.
The management has guided for revenue growth of 12–13 per cent for CY10 and CY11, up from the 9–10 per cent run-rate posted in the past two years. New product launches are expected to underpin the growth shift. GSK Pharma’s EBITDA margin increased 10 basis points to 36 per cent in CY09. The company intends to increase its field force and raise promotional expenses to support its new product basket. However, these incremental costs will be offset by an improving product mix and stronger operating leverage. In addition, niche product opportunities will offer a margin upside. The brokerage has revised its earnings estimates for Glaxo by 2–3 per cent for CY10 and CY11 to reflect the upbeat growth prospects, and maintains buy on the stock, which is currently trading at a P/E of 23 times its estimated CY10 earnings.
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