GSK 2Q results were disappointing with 3% decline in MFD volumes amidst continuous pressure on discretionary spending by the consumers.
GSK is adopting an aggressive strategy to boost volumes by
1) re‐launch of Horlicks and Boost sachets at Rs5
2) Re‐launch of Women’s Horlicks and Junior Horlicks and
3) launch of Horlicks Growth plus to compete with players like Pediasure in the premium segment.
While we expect gradual recovery in demand in line with our discretionary products, input cost pressures are likely to emerge due to increase in prices of SMP, Sugar and Malted Barley. GSK Asia has reduced the marketing margin on its sales from 16.75% to 15% which will have some impact on Business Auxiliary Income. We expect stunted profit growth in near term and estimate 7.6% CAGR in PAT over FY16‐19. GSK trades at 31.4xFY18 EPS of Rs 183 which is 20% discount to coverage universe which limits downside. Retain “Accumulate”.
GSK is adopting an aggressive strategy to boost volumes by 1) re‐launch of Horlicks and Boost sachets at Rs5
2) Re‐launch of Women’s Horlicks and Junior Horlicks and
3) launch of Horlicks Growth plus to compete with players like Pediasure in the premium segment.
While we expect gradual recovery in demand in line with our discretionary products, input cost pressures are likely to emerge due to increase in prices of SMP, Sugar and Malted Barley. GSK Asia has reduced the marketing margin on its sales from 16.75% to 15% which will have some impact on Business Auxiliary Income. We expect stunted profit growth in near term and estimate 7.6% CAGR in PAT over FY16‐19. GSK trades at 31.4xFY18 EPS of Rs 183 which is 20% discount to coverage universe which limits downside. Retain “Accumulate”.
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