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SYNOPSIS

GlaxoSmithKline Consumer

Healthcare Limited engages in the

manufacture and sale of nutritional

foods and over the counter drugs

primarily in India.

During the quarter, the company’s

sales have phenomenal raised with

the rise volume and also quarter

under margins pressure.

GlaxoSmithkline Consumer

Healthcare Ltd has recommended a

Dividend at the rate of Rs. 35/- per

equity share of Rs. 10 each.

Company has 85 manufacturing

sites in 37 countries, over 16000

R&D.

Net Sales and PAT of the company

are expected to grow at a CAGR of

15% and 16% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

CY 11 27706.80 5897.10 3552.10 84.45 31.07

CY 12E 31862.82 6738.08 4091.69 97.28 26.97

CY 13E 36323.61 7754.06 4737.23 112.63 23.29

Stock Data:

Sector: FMCG

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 2700.00/1972.10

Volume (2 wk. Avg.) 9206

BSE Code 500676

Market Cap (Rs.In mn) 110350.71

Share Holding Pattern

1 Year Comparative Graph

GSK Consumer BSE SENSEX

C.M.P: Rs. 2623.65 Target Price: Rs. 2964.00 Date: Feb 22nd, 2012 BUY

GlaxoSmithKline Consumer Healthcare Ltd Result Update: Q4 CY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

GSK Consumer 2623.65 110350.71 83.10 31.57 11.49 500.00

Nestle 4269.90 424229.20 96.88 44.07 48.13 485.00

REI Agro 14.79 20261.40 3.25 4.55 0.61 30.00

Britannia Industries 494.00 56703.30 13.41 36.84 13.08 325.00

Investment Highlights

Q4 CY11 Results Update

GSK Consumer Ltd disclosed a phenomenon rise in standalone net sales for the

quarter ended Dec 2011. During the quarter, the profit of the company surged

10.74% to Rs 591.00 million from Rs 533.70 million in the same quarter previous

year. Net sales for the quarter for the quarter rose 19.19% to Rs 6247.90 million

from Rs 5241.90 million, when compared with the prior year period. It reported

earnings of Rs 14.05 a share during the quarter, registering 10.74% increase over

previous year period.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 6247.90 5241.90 19.19

PAT 591.00 533.70 10.74

Basic EPS 14.05 12.69 10.74

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Break up of Expenditure

Recommended dividend

GlaxoSmithkline Consumer Healthcare Ltd has recommended a Dividend at the

rate of Rs. 35/- per equity share of Rs. 10 each.

Company Profile

GlaxoSmithKline Consumer Healthcare Limited engages in the manufacture and sale

of nutritional foods and over the counter drugs primarily in India. It offers malt based

foods, cereal based beverages, protein rich food, biscuits, nutrition bar sweetmeat,

ready-to-drink, instant noodles with seasoning, and ghee, milk fluid and milk cream.

The group exports to Bangladesh, Myanmar, Sri Lanka, Middle East, Nepal and other

markets. It was incorporated in 1958 as a 40% subsidiary of Smithkline Beecham Plc

of UK. The manufacturing plants of GLAXOCON are located in Nabha (Punjab),

Rajahmundry (Andhra Pradesh) and Sonepat (Haryana).

The Gurgaon-based R&D center of GLAXOCON has been fully functional. The

company plans to leverage its expertise in the food processing industry to innovate

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and serve the domestic consumers who are becoming more and more health

conscious. GLAXOCON wants to improve its out-of-home business by boosting its

vending business.

The company has a 100-year-old brand like Horlicks in its portfolio. The company also

manufactures and markets Boost, Viva, Maltova, biscuits (under Horlicks brand).

Apart from that, the company also sells its products like Horlicks and Boost through

vending machines. GLAXOCON also has presence in over-the-counter drugs like

Crocin, Eno and Iodex. The Sonepat factory of GLAXOCON has a capacity to produce

26,100 tons of Horlicks per annum and is automated in such a way that the final

product comes out hygienically without being touched by human hands.

Products

Nutritional:

Horlicks

Boost

Maltova

Viva

Vending

OTC

Crocin

Eno

Iodex

Products

Nutritional

Vending

OTC

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY 10 CY 11 CY 12E CY 13E

Description 12m 12m 12m 12m

Net Sales 23737.50 27706.80 31862.82 36323.61

Other Income 497.60 795.80 939.04 1070.51

Total Income 24235.10 28502.60 32801.86 37394.12

Expenditure -19294.00 -22605.50 -26063.79 -29640.07

Operating Profit 4941.10 5897.10 6738.08 7754.06

Interest -26.00 -34.70 -32.56 -35.16

Gross profit 4915.10 5862.40 6705.52 7718.89

Depreciation -397.10 -459.80 -496.58 -541.28

Profit Before Tax 4518.00 5402.60 6208.93 7177.61

Tax -1519.50 -1850.50 -2117.25 -2440.39

Profit After Tax 2998.50 3552.10 4091.69 4737.23

Equity capital 420.60 420.60 420.60 420.60

Reserves 9179.80 12731.90 16823.59 21560.81

Face value 10.00 10.00 10.00 10.00

EPS 71.29 84.45 97.28 112.63

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 6738.70 7446.00 6247.90 8184.75

Other income 154.80 231.10 259.10 272.06

Total Income 6893.50 7677.10 6507.00 8456.80

Expenditure -5548.40 -6020.70 -5404.20 -6482.32

Operating profit 1345.10 1656.40 1102.80 1974.48

Interest -9.00 -10.30 -8.80 -9.24

Gross profit 1336.10 1646.10 1094.00 1965.24

Depreciation -113.10 -116.50 -120.90 -125.74

Profit Before Tax 1223.00 1529.60 973.10 1839.51

Tax -398.40 -499.30 -382.10 -612.56

Profit After Tax 824.60 1030.30 591.00 1226.95

Equity capital 420.60 420.60 420.60 420.60

Face value 10.00 10.00 10.00 10.00

EPS 19.61 24.50 14.05 29.17

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Key Ratios

Particulars CY 10 CY 11 CY 12E CY 13E

No. of Shares(In Million) 42.06 42.06 42.06 42.06

EBITDA Margin (%) 20.82% 21.28% 21.15% 21.35%

PBT Margin (%) 19.03% 19.50% 19.49% 19.76%

PAT Margin (%) 12.63% 12.82% 12.84% 13.04%

P/E Ratio (x) 36.80 31.07 26.97 23.29

ROE (%) 31.23% 27.01% 23.73% 21.55%

ROCE (%) 55.60% 48.33% 41.95% 37.74%

Debt Equity Ratio 0.00 0.00 0.00 0.00

EV/EBITDA (x) 22.33 18.71 16.38 14.23

Book Value (Rs.) 228.25 312.71 409.99 522.62

P/BV 11.49 8.39 6.40 5.02

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Charts:

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Outlook and Conclusion

At the current market price of Rs.2623.65, the stock is trading at 26.97 x

CY12E and 23.29 x CY13E respectively.

Earning per share (EPS) of the company for the earnings for CY12E and CY13E

is seen at Rs.97.28 and Rs.112.63 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 15% and

16% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 16.38 x for CY12E and 14.23 x

for CY13E.

Price to Book Value of the stock is expected to be at 6.40 x and 5.02 x

respectively for CY12E and CY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.2965.00 for Long term investment.

Industry Overview

India is the second largest producer of food and holds the potential to be the biggest

on global food and agriculture canvas, according to a Corporate Catalyst India (CCI)

survey. The food industry in India comprises the food production industry and the

food processing industry. The food processing industry is one of the largest in India –

it is ranked fifth in terms of production, consumption, export and expected growth.

Growth Drivers of India’s food Industry

The growth of the food industry is driven by:

• Higher disposable incomes

• Change in spending pattern

• Increasing organised food retailing

• Increasing export opportunities

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• Favourable regulatory environment and Government support and investment

inflows

Market Size of Indian food Industry

The Indian food industry is projected to grow by US$ 100 billion to US$ 300 billion by

2015, according to a report by a leading industry body and Technopak. The industry,

estimated at US$ 200 billion in 2006-07, is projected to reach US$ 300 billion by

2015. During the period, the share of processed food in value terms is expected to

increase from 43 per cent to 50 per cent.

Exports

Exports of organic food products are expected to grow five-fold by 2015, according to

the Agriculture and Processed Food Products Export Development Authority (APEDA).

The Government agency expects exports to touch US$ 1.43 billion by 2014-15 against

US$ 280 million in 2010-11.

Exports of floriculture, fresh fruits and vegetables, processed fruits and vegetables,

animal products, other processed foods and cereals stood at US$ 5.45 billion as on

November 2010-2011, according to DGCIS annual data published by APEDA.

Spice Board has revealed that the export of spices from India during 2010-11 has

registered an-all-time-high both in quantity and value. During the year, a total of 5,

25,750 tonnes of spices and spice products valued at US$ 1,502.85 million were

exported, as against 5, 02,750 tonnes valued at US$ 1,173.75 million in 2009-10. This

is an increase of 5 per cent in volume and 28 per cent in dollar terms of value.

Food Processing Industry

Food processing Industry is one of the largest industries operating in India, and is

highly fragmented.

Segments

The Food Processing Industry operates across various segments that include:

• Fruits & vegetables

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• Meat & poultry

• Dairy

• Marine products, grains and consumer foods (that includes packaged food,

beverages and packaged drinking water).

Value addition of food products is expected to increase from 8 per cent to 35 per cent

by the end of 2025. Fruit & vegetable processing is also expected to increase to 25 per

cent of total production in 2025 from the current level of 2 per cent, states the CCI

report. Dairy sector – that holds highest share in processed food market – holds large

potential to be exploited. The report reveals that 37 per cent of the total dairy produce

is processed of which only 15 per cent is done by the organised sector. Hence, there

still lies a lot of scope for investment and development.

The sector has attracted foreign direct investment (FDI) worth US$ 1,253.79 million

from April 2000 to April 2011, according to the data provided by Department of

Industrial Policy and Promotion (DIPP).

The amount of FDI inflow for Food Processing Sector in India during the financial year

2010-11 up to November 2010 (8 months) is US$ 129.2 million.

Beverages

The Indian non-alcoholic drinks market was estimated at around US$ 4.43 billion in

2008 and is expected to grow at a CAGR of around 15 per cent during 2009-2012,

according to a report published by market research firm RNCOS, titled "Indian Non-

Alcoholic Drinks Forecast to 2012".

As per the report, the fruit/vegetable juice market will grow at a CAGR of around 30

per cent in value terms during 2009-2012, followed by the energy drinks segment

which will grow at a CAGR of around 29 per cent during the same period.

Investment Trends

• Dan Cake, Portugal, one of the leading names in the world of bakery and

confectionery industry and one of the largest butter cookies producers

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worldwide is set to enter the Indian market. For this, the company has formed a

66:34 joint venture with Pune-based Phadnis Group.

• US based McCormick & Co, a leading spice maker, will invest close to US$ 115

million in a joint venture it will form with Kohinoor Foods Ltd, a leading

marketer of branded Basmati rice and other food products. McCormick's

investment, through a Singapore-based subsidiary, will include picking up an

85 per cent stake in the new joint venture Kohinoor Speciality Foods India Pvt

Ltd. Kohinoor will hold the balance 15 per cent.

• Quick food service restaurant chain Subway will set up 45 outlets across the

country by 2011-12 entailing investment of almost US$ 9 million. The company

has now 205 outlets in India and plans to take its count to 250 by the end of

this fiscal.

• French dairy firm Danone is chalking out a measured expansion plan in India.

The corporation has been in India for a little over a year and has introduced

yogurt, dahi (curd) and smoothie product range in Pune and Mumbai. It is now

focusing on Hyderabad.

Players & Strategies

Presence of numerous segments across the food industry has generated scope for the

players to foray into diversified portfolios and avenues. For instance, domestic player

Dabur India ltd. deals in beverages and culinary products and foreign company HUL

offers beverages, staples, dairy and snack foods. Where on one hand overseas firms

like ITC, HUL, Britannia and Pepsi offer wide product range and quality, Indian

players like Haldirams, MTR and Parle leverage their position on competitive pricing

and mass reach.

Government Initiatives

The Indian government has approved funds for establishing 15 mega food parks

across the country, Food Processing Secretary Ashok Sinha said.

In the wake of social responsibility, the Food Ministry is considering a new law

restricting the amount of food wasted at Indian weddings.

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The Union budget 2011-12 has also allocated US$ 135 million to the Food Processing

Ministry from the previous US$ 90 million. As a measure to boost investment in

agriculture the minister extended the Viability Gap Funding Scheme (VGFS) for public

private partnerships (PPP) for setting up modern storage capacity besides giving

infrastructure status to cold chains.

Road Ahead

The food industry in India has taken off significantly well and will continue to grow

rapidly given the unexplored potential in the sector. The growth in this sector is not

only indicative of changing development patterns of the country, similar to the

developed nations, but also the promise it holds in propelling growth of a certain

section of society that has remained constrained for a long time.

The government of India had also announced Vision 2015, which lays focus on

enhancing the competitiveness of food processing industry in both domestic as well as

international markets along with ensuring stable income levels to farmers. The Vision

2015 provides for enhancing the level of processing of perishable to 20 per cent,

enhancing value addition to 35 per cent and increasing the share in global food trade

from 1.5 per cent to 3 per cent, by 2015.

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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