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Transcript of GSK Consumer - Analyst Report
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8/11/2019 GSK Consumer - Analyst Report
1/31
EdelweissResearchisalsoavailableonwww.edelresearch.com,
BloombergEDEL,ThomsonFirstCall,ReutersandFactset. EdelweissSecuritiesLimited
GSKConsumers(GSK)strongbrandequityinunderpenetratedandhighgrowthhealthfooddrinks(HFD)categoryrendersitalucrativeplayinthe
consumer goods space. Its sustaineddominance in the segmentamidst
intensecompetition isprimarilyduetoundividedfocusonproduct line,
continuous innovation and expansion of distribution network. We are
cautiously optimistic about GSKs strategy of venturing into other fast
growingfoodandbeveragescategories;however,keyrisk/concerncould
beitsinabilitytomeaningfullyscaleupnewsegmentslikenoodles,oats.
WeinitiatecoveragewithBUY.
BrandHorlicksundisputedleaderinmaltedhealthmilksegment
GSKis
the
undisputed
dominant
player
in
the
fast
growing
under
penetrated
domestic
malted health drinksegment (~70% market share) withHorlicks,Boost,Maltova and
Viva. Its key brands Horlicks and Boost have posted impressive double digit sales
growth(~20%CAGR)overthepastfiveyears.NewHorlicksvariants,ridinghighonthe
brand,havealsofoundfavourwithconsumers(contributes~20%toHorlicksstopline).
Innovatingandreinvigoratingofferingstocaptureconsumerpie
Thecompany, leveraging itsstrongbrandequity,hasventured intobiscuits,noodles,
and oats in line with its strategy of developing products in the health and wellness
segment.ItisalsoexpandingdistributioninNorth&WestwherethepresenceofGSK
islimitedandprovidesahugegrowthopportunity(North&Westcontributes~15%to
salesand
likely
to
reach
20%
25%
in
the
next
4years.
Auxiliary
income
from
the
OTC
segmentisexpectedtoberobustonthebackofnewlaunches.
Outlookandvaluations:Upbeat;initiatewithBUY
We believe processed food companies will grow faster visvis nonfood consumer
companies. Our target for GSK is 24x CY13E EPS (INR119.9) which gives us a value of
~INR2,900.WebelievethismultipleisjustifiedgiventhecompanysleadershipintheHFD
segmentwithpricingpower,highgrowthpotentialandnocompetition.Hence,weinitiate
coveragewithBUY.Onrelativereturnbasis,thestockisratedSectorPerformer.
INITIATINGCOVERAGE
GSKCONSUMERCashinginongrowthDNA
EDELWEISS4DRATINGS
AbsoluteRating BUY
RatingRelativetoSector Performer
RiskRatingRelativetoSector Medium
SectorRelativetoMarket Overweight
MARKETDATA(R: GLSM.BO,B: SKBIN)
CMP : INR2,540
TargetPrice : INR2,900
52weekrange(INR) : 2,700/1,930
Shareinissue(mn) : 42.1
Mcap
(INR
bn/USD
mn)
:
107/2,026
Avg.DailyVol.BSE/NSE(000) : 18.2
SHAREHOLDINGPATTERN(%)
*Promoterspledgedshares
(%ofshareinissue)
: NIL
PRICEPERFORMANCE(%)
Stock Nifty
EWConsumer
GoodsIndex
1month (0.8) (6.2) (1.5)
3months 5.5 (2.9) 2.6
12months 14.2 (19.6) 12.0
AbneeshRoy
+912266203141
HarshMehta
+912240635543
IndiaEquityResearch|ConsumerGoods
January10,2012
Promoters*
43.2%
MFs,
FIs
&Banks
16.5%
FIIs
14.1%
Others
26.2%
Financials
YeartoDecember CY10 CY11E CY12E CY13E
Revenues(INRmn) 23,061 26,975 31,795 37,567
Rev.
growth
(%) 20.0 17.0 17.9 18.2
EBITDA(INRmn) 4,365 5,045 6,028 7,173
Netprofit(INRmn) 2,999 3,543 4,221 5,044
Sharesoutstanding(mn) 42 42 42 42
DilutedEPS(INR) 71.3 84.3 100.4 119.9
EPSgrowth(%) 28.8 18.2 19.1 19.5
DilutedP/E(x) 35.2 29.8 25.0 20.9
EV/EBITDA(x) 22.0 18.7 15.3 12.5
ROAE(%) 32.8 34.5 34.2 34.1
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ConsumerGoods
2 EdelweissSecuritiesLimited
InvestmentRationale
Vision2xontrack
GSK iswellontracktoachieve itsvisionofprofitablydoublingbusinessover200711with
revenuegrowingat20%CAGRsincepast5years.
Chart1:
Revenue
growing
at
20%
CAGR
Source:Company,Edelweissresearch
HugebrandequitywithdominantmarketshareinHFD
GSK dominates the domestic HFD segment with brands Horlicks,Boost, Maltova andViva,
whichcollectivelycommand70%plusshareonbackoftheextremelypopularHorlicksbrand.
Thecompanyhasnearmonopoly inwhiteHFD(75%oftotalHFDmarket)with itsHorlicks
brandwhichhas~54.5%marketshareoftheoverallmarket(white+brown).InbrownHFD,
brandBoost
(market
share
~13%)
is
facing
higher
competitive
intensity
from
Cadburys
Bournvita(~16%marketshare)andHeinzsComplan(~11%marketshare).
Chart2:GSKdominatesHFDsegment
Source:Company,Edelweissresearch
0
7,000
14,000
21,000
28,000
35,000
CY06 CY07 CY08 CY09 CY10 CY11E
(INRmn)
Horlicks54%
Boost
13%
Viva
2%
Maltova
1%
Bournvita
16%
Complan
11%
Others
3%
GSKisontracktodoublebusiness
70%+marketshareonthebackof
extremelypopularHorlicksinHFD
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Strongbrandenablesthecompanycommandapremiumoveritsnearestcompetitor.Thisis
evident from the fact that Horlicks Gold (30% premium to base Horlicks) has gained 2%
market share in three months of launch and has created a huge entry barrier for new
entrantsintheHFDsegment.
SouthandEast India, facingmilkdeficiency,usedHorlicksasamilksubstitute,making ita
leading
brand
in
those
regions.
Ergo
penetration
is
high
in
these
regions
vis
vis
North
and
West.However,still thecategorypenetration issignificantly lowat22% (11% inruraland
40%plusinurban)countrywideprovidingasignificantdemandupside.
Chart3:LowpenetrationofHFDprovideshumungousgrowthopportunity
Chart4:GSKsHFDmarketshareHighinSouthandEast
Source:Company,Edelweissresearch
0.0
10.0
20.0
30.0
40.0
50.0
Rural Urban AllIndia
(%)
0
20
40
60
80
100
North West South East
(%)
HFDpenetrationlevelsare
extremelylowat22%panIndia
NorthandWestprovidepotential
upside
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Hugebrandequityastrongentrybarrier
GSKsstrongfootholdintheHFDsegmenthasposedasignificantentrybarrierwithHorlicks
being synonymous with white HFD. Big players like Hindustan Unilever (HUL), Dabur and
Nestlehave triedtheirhand inthesegment,buthadtorecalltheirofferingsastheywere
unabletogainanysignificantground.
Nestle,which
has
astrong
reach
in
India,
had
introduced
Milo
(a
leading
product
in
South
EastAsianmarkets)in1997,whichwaswithdrawnin2008asitmanagedtocaptureamere
3%ofmarketduring its longstint.HULtest launchedAmazeduring200709.Theproduct
positionedasabrainfoodforchildrenwasneverlaunchedatthenationallevel.Daburhad
launched (2009) Chyawan Junior leveraging the equity of Chyawanprash. However, the
producthasreceivedonlymoderateresponse.
Innovatingandreinvigoratingofferingstocaptureconsumerpie
The company has beensuccessful in keeping alive the freshness quotient of its brandsby
consistently innovatingand introducingvariantscatering tocustomerneeds.Aspartof its
strategy, GSK is leveraging its Horlicks brand to fill various gaps by targeting specific
consumer
needs.
These
extensions
today
contribute
20%
plus
to
overall
Horlicks
revenue.
Giventhepricingpremiumforvariants,thisalsohelpsinpremiumisation.
The new variantsJunior Horlicks, Mother Horlicks and Womens Horlicksare not only
aiding volume growth, but also helping premiumisation play. The recent launch Horlicks
Gold (at 30% premium over base) targeted at loyal Horlicks consumers has gained good
ground,clocking2%marketsharewithinthreemonthsoflaunch.
Fig.1:HFDevolution
BigplayerslikeHindustanUnilever
(HUL),DaburandNestlehavetried
theirhandinthesegment,buthad
torecalltheirofferings
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Chart5:Horlicksrevenuesplit
Source:Company,Edelweissresearch
Although the malted health food drink segment forms a small part of the processed food
andbeverages industry, the segment is estimated to growsignificantlyon backofsurging
demandforhealthyandnutritiousfoodproducts.GSK iswellpositionedwithrobustbrand
equity to take advantage of this opportunity. The Indian malt based HFD market was
estimatedatINR35bninFY11andhasbeenposting20%CAGR.ThepenetrationlevelofGSK
inHFDsegmentis~22%onpanIndiabasiswith11%inruralIndiaand40%plusinurban.
HorlicksandBoosthavepostedanimpressive~20%CAGRoverthepastfiveyears(CY0610).
The penetration malted HFD market in India is less and the segment is poised for high
growth.
DiversifyingtotrimdependenceonHFDsegment
GSK
is
increasingly
working
towards
reducing
dependence
on
the
HFD
segment
and
strengthening its nonHFD portfolio. It has diversified into biscuits, noodles, oats, healthy
snackingbarsandenergydrinks,whichnowcontribute67%tothetopline,whichitintends
totakeupto15%inthenextthreefiveyears;weestimate9%byCY13.
We expect GSKs nonHFD portfolio to grow faster than the HFD portfolio. It will further
reduce the companys dependence on a single category to a well diversified portfolio,
providingabroaderbaseforearningsgrowth.
Junior
10% Gold
3%Lite
2%
Mother
2%
Women
3%
Base White
73%
Base Chocolate
7%
20%contributiontoHorlicks
revenuefromvariants
NonHFDportfoliotogrowfaster
thantheHFDportfolio
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Chart6:Productportfoliorevenueshare
Source:Company,Edelweissresearch
Bankingonhealthandnutritionpositioning:GSKhasmaintaineditspositioningofoffering
nutritiousandhealthyproductswhichiscompletelyinsyncwiththegrowingtrendofhealth
consciousness.Healthandwellnessisbecomingthefocusofmarketplayersinthefoodand
beveragessectorandthecompanyiswellplacedtotakeadvantageofthesame.
Venturing into high growth noodles segment: Foodles (noodles: INR18bn category) was
launchedinDecember2009andithasgarneredanallIndiamarketshareof2.02.5%with
sales of INR323.5mn in CY10. The product is being promoted as an offering with higher
nutritionalvalueanditcomeswithavitaminpackedhealthmakersachet.Theproducthas
been differentiated on the multigrain and wheatbased noodle offering. However, the
company is now planning to revisit its noodles strategy as it has been unable to increase
marketshareduetolackofadditionalcapacityfromthirdpartymanufacturerIndoNissan.
It
is
likely
to
focus
on
South
and
East
markets
where
it
can
leverage
onHorlicks
brand
equity.
Fig.2:PromotionofFoodles
Source:Company
Extensions
andnew
formats
16%
Base HFD
84%
2007 Extensionsandnew
formats
23%
Base HFD
77%
2011
Thecompanyisnowplanningto
revisititsnoodlesstrategyasithas
beenunabletoincreasemarket
share
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Consumer preference is shifting to healthy food. At the same time, with changes in food
habits,readytoeat food isoneofthe fastestgrowingcategories (CAGR~20%).Here,GSK
hasgrabbedmarketshare initially,especially inSouthandEast,onbackofHorlicksbrand
equity and a strong distribution network. The market share in South and East reached
around6%withinaspanofayear.However,Foodleshasbeenperformingpoorlyinrecent
months.Weexpectflatvolume inthiscategoryfortheentireyeardespitea lowbase.The
company
is
evaluating
its
strategy
on
this
front.
Biscuitsandsnack foodcategorygrowing indoubledigits:GSKsentry inothersegments
likebiscuits,cookiesandhealthysnackshasplayedoutwellasithasleveragedtheHorlicks
healthperception.Despitestiffcompetitioninthesecategories,theperformancesofarhas
beenpositive.Contributionofthesenewcategoriestosalesisexpectedtorisesignificantly.
In2010,thecompanylaunchedHorlicksBiscuitsinthreeflavoursandalsoHorlicksCookies.
Asaresult,biscuitscategoryregistered57%YoYgrowthinQ1CY11,49%inQ2CY12and18%
inQ3CY11.Asteadygrowthof20%isexpectedinthiscategory.Thestrategyofgrowingin
these categories of packaged food and beverages with a robust positioning in health and
nutritionsegmentoffersapromisinggrowthopportunity.
Launch
of
sports
drink:
The
company
launchedLucozade
Sports
Isotonic
Sports
drink
in
2010 which is a isotonic formulation that replaces fluid and electrolytes. The domestic
energydrinkmarketisestimatedatINR1.5bn.Thoughstillinanascentstage,thesegmentis
growing fast with Pepsi and Amul coming in with offerings like Gatorade and Stamina,
respectively.
Entryintoglucosepowdersegment:GSKhasenteredtheINR6bnglucosepowdersegment
withBoostGlucoseinNorth,SouthandWestandGlaxoseDundertheHorlicksbrandinthe
East. The category is expected togrow exponentially. Margins in this category areslightly
lowerthaninHFD,butarehigherthanbiscuitsandnoodles.
Nutribar: DuringFebruary2009 the company launchedHorlicksNutribara highnutrition
cerealbar
offered
as
ahealthy
snack
between
meals
and
aconvenience
to
urban
customers.
Italsolaunchedpremiumproteinsupplements.However,ithasnowbeenwithdrawndueto
issueswithoutsourcingmanufacturingfacilities.
Oats:ThecompanyhasrecentlyventuredintotheINR2bnoatsmarketunderbrandHorlicks,
whichhasbeenwellreceived.AsperthesurveyconductedbyGSK,mostHorlicksconsumer
buyoatstherebyGSKventuredintooats.
Foodprocessingtojump~4.5xby2020
Thedomestic food processing industry isestimatedat INR 2,000bn andposted a CAGRof
~7%untiltheTenthFiveYearPlan.Withrisingdemand,thesectorispoisedtogrowatmore
than10%.
With
increasing
disposable
incomes,
changing
lifestyles,
hectic
work
schedules,
rising time pressures, rising health consciousness and increased awareness levels, various
packaged food and beverage categories are growing exponentially.Consumer preferences
areshiftingintermsofeatinghabitswithan increased inclinationtowardswestern,ready
toeatandreadytocookconveniencefood.
Despitestiffcompetitioninthese
categories,theperformancesofar
hasbeenpositive.
Enteringnewersegmentsbutwith
healthinmind
Nutribarhasnowbeenwithdrawn
duetoissueswithoutsourcing
manufacturingfacilities
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Chart7:Changeinfrequencyofeatingnonhomemadefoodoverpastfiveyears
Source:EdelweissSurvey
With rising urbanization and significant surge in reach of information and communication
technologies, lifestyles are transforming. As a result, the processed food and beverages
segment is growing impressively with its increasing contribution to the consumer goods
sector.
Chart8:%shareofsegmentsinconsumergoodsinCY10 Chart9:%shareofsegmentsinconsumergoodsinCY20E
Source:EdelweissSurvey
Riseindisposableincomeshasledtoriseinconsumerspending.Asignificantamountofthis
increase
has
been
directed
towards
processed
food
consumption.
An important trend in this scenario is the rising health consciousness among consumers.
Withtheprimevaluepropositionofhealthandnutrition,GSKisstronglypositionedtocater
tothisneed.
Increased
significantly
46%
Increased
marginally/rema
inedsame
37%
Decreased
17%
Food
46%
HPC
38%
Others
16%
Food
52%HPC
39%
Others
9%
Withrising
urbanization
the
lifestyleofpeopleistransforming
Risinghealthconsciousnessamong
consumers
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Chart10:Consumersensitivitywhilepurchasingpackagedfood
Source: EdelweissSurvey
RuralIndiatobeanotherpotentialgrowthmarket:Ruralmarketisanothergrowthdriver
forGSKasthissegmentscontributiontotheconsumergoodssectorhasbeenontherise.
Theruralpercapitaincomehasincreasedatafasterrateof40%over200409asaresultof
rural development boosted by growth in manufacturing and agricultural sector and
government initiatives likeNEREGA.GSKhasbeenmakingefforts totap into thissegment
withvariousdistribution initiativesandspecializedpackaging insmallerSKUs(INR5, INR10
andINR15).Theseinitiativesarelikelytoincreasecontributionfromruralmarkets.
Chart11:RuralIndiaisabiggermarketforconsumergoods
Source:Company,
Edelweiss
research
0.0
20.0
40.0
60.0
80.0
100.0
Quality
Health
consciousness
Easyavailability
atstores
Brand
Convenient
tocook
Price
Promotional
offers
(%)
Strongly
sensitive Mildly
sensitive Indifferent
Rural
56%
Urban
44%
Ruralinitiativeincludedistribution
initiativesandspecializedpackaging
insmallerSKUs(INR5,INR10and
INR15)
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Chart12:Ruralconsumergoodsmarketsettodoubleinnextfiveyears
Source:Company,Edelweissresearch
Distribution network: To maintain high velocity of rural growth, GSK has a strong
distributionnetworktofallbackon.Ithasreduceditsdistributorsfrom~2,000to~600and
buildastrong subdistributor force of~5,000which has helped it increasedirect reach to
0.7mnoutletsfrom0.5mninCY09.Thecompanyhasanoverallreachof1.5mnoutletswith
itsflagshipbrandHorlicksbeingpresentin~1mnoutlets.
Businessauxiliary incomefromtheOTCsegment:GSKhasadistributionalliancewithGSK
Asia(CrocinandEno)andGSKPharma(Iodex)wherethecompletesupplychain ishandled
byGSKforwhichitchargesacommissionof16.7%toGSKAsiaand10.5%toGSKPharma.
Revenuethusgeneratedformsapartofitsbusinessauxiliary incomecontributing~15%to
EBITDA.
The
OTC
segment
has
done
well
in
establishing
strong
brand
equity
backed
by
dynamicinnovation.CrocinPainRelief andCrocinSuspensionDouble have been recently launched.
Iodexheadachewaslaunchedinthelastquarterof2010.Enobrandhasalsosurged2025%.
GSK has also entered oral healthcare with Sensodyne (toothpaste) and the nasal strips
category withBreatheRight. Sensodyne is witnessing robust success by capturing 3% of
total toothpastemarket (25%ofsensitive toothpastemarket).Sensitivecategorysgrowth
(2025%)isoutpacingtoothpastemarketandisanINR4bnmarketopportunity.
Exports: GSK exports HFD products to Sri Lanka, Bangladesh, Nepal and the Middle East.
Exportscontributed~6%tothetop line inQ3CY11andmanagementexpectsthissegment
togrowatover15%inthecomingquarters.
Table1:
HFD
versus
non
HFD
Source:Company,Edelweissresearch
120
225
0
50
100
150
200
250
CY10 CY15E
(USDbn
)
CY06 CY07 CY08 CY09 CY10 CY11E CY12E CY13E
Malted/cereal/proteinbasedfood 95.3 96.0 96.0 95.0 94.0 92.8 91.7 90.9
Biscuits and snackfood 4.1 3.5 3.5 4.4 5.6 6.8 7.8 8.7
Others 0.7 0.6 0.5 0.6 0.5 0.5 0.4 0.4
Directreach
to
0.7mn
outlets
Managementexpectsthissegment
togrowatover15%inthecoming
quarters
Auxiliaryincomecontributing~15%
toEBITDA
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Focusedmarketingstrategytorevitalisebrands,explorenewsegments
GSK has consistently shifted thepositioning of its brands in line with the dynamics of the
industryandchangingconsumerpreferences.Horlickswaspreviouslypromotedasageneric
healthdrink.Later,variantswereintroducedtocatertospecificmarketsegments.Looking
at the companys evolving product portfolio, it is clear that GSK is actively expanding
through the routes of market penetration (with established brands Horlicks and Boost),
productdevelopment
(with
introduction
of
variants
of
existing
brands
and
new
brands
like
Maltova and Viva in the existing market segment), market development (with products
specifically for untapped segments like women and elderly diabetics) and diversification
(venturingintonoodles,snacksandsportsdrinksmarket).
Fig.3:Productportfolio
Source:Company,Edelweissresearch
Fig.4:Productsnapshot
Source:Company
Bankingonhealthandnutritionpositioning:GSKhasmaintaineditspositioningofoffering
nutritiousandhealthyproductswhichiscompletelyinsyncwiththegrowingtrendofhealth
consciousness.Healthandwellnessisbecomingthefocusareaofmarketplayersinthefood
andbeveragessectorandGSKiswellplacedtocashinonthesame.
Healthandwellnessisbecoming
thefocusareaofmarketplayersin
thefoodandbeveragessectorand
GSKiswellplacedtocashinonthe
same.
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Usingcelebrityendorsementstobuildbrandequity:Thecompanyhasbeenusingcelebrity
endorsements to promote its brands and connect with consumers. Kapil Dev, Sachin
Tendulkar (1989), Virendar Sehwag (2002) and Mahendar Singh Dhoni (2008) have been
brandambassadorsforBoostwhich isthefirstHFD in Indiatobeendorsedbyacelebrity.
KonkanaSenwasroped inforpromotingWomensHorlicks.Horlickshadalsotiedupwith
movieslikeIceAgeIIandSupermanReturnstoconnectwithkids.
Fig.5:GSKspromotionovertheyears
Source:Company
Increased advertisement andpromotion spending:Tokeepupwithstiffcompetitionand
providestrong
backing
to
sales,
GSK
has
been
augmenting
its
spending
on
advertisement
andpromotions.AdvertisingandpromotionsexpenditureinCY10was16.1%ofsalesagainst
12.9% in CY06. Higher spending is set to reinforce its brand equity. We expect, the ad
spendstosustainatthesehighlevelsasitentersnewcategories.
Chart13:A&Paspercentageofsaleshasbeenrising
Source:Company,Edelweissresearch
8.0
10.0
12.0
14.0
16.0
18.0
CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10
(%
)
A&Pasa%ofsales
Advertisingandpromotions
expenditurein
CY10
was
16.1%
of
salesagainst12.9%inCY06
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Chart14:Distributionnetworkisspreadingwings
Source:Company,Edelweissresearch
GSKs distribution initiatives and introduction of low unit packs have helped it augment
presence in rural market. The contribution of small SKUs to the companys revenue is
merely3.5% indicatinghugepotentialforfuturegrowth.Thecategory isgrowingat~40%.
Ruralmarketscontribute27%tothetopline.
Encouragingresponse fromNorthandWest Indiaofferahugescope forexpansion:GSK
hasstrongbrandequityinSouthIndia;ithasnowincreasedfocusondistributionexpansion
intheNorthandWestaswellwhereitsmarketshareissignificantlylowerat34%and23%,
respectively. Boost, which grew 25% overall, grew 35% in these regions. With strong
presence insouthernandeasternregions, tapping into theNorthandWest isgoingtobe
thekeygrowthdriverforthecompany.
Chart15:
Area
wise
revenue
contribution
(%)
Source:Company,Edelweissresearch
0.3
0.4
0.5
0.6
0.7
0.8
CY09 CY10 CY11E
(Numberofoutle
ts(mn))
South
46%
West
4%
East
38%
North
6%
Exports
6%
ThecontributionofsmallSKUsis
merely3.5%indicatingstrongcase
forfuturegrowth.
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Strongbrandequityenablespricehikestooffsetrawmaterialinflation
GSKsdependenceonagricommoditiesishigh.Pricesofkeyrawmaterialslikemilkandmilk
powder(~28%oftotalrawmaterial),malt(~16%)andwheat(~6%)havecatapultedonback
offoodinflation.Totalinputcosthasrisen21%onanaverage(inflationcontributed10%)in
CY10.ThecompanytriestocontainCOGSinflationbytakingpricehikes,whichwebelieve,is
notdifficultduetoitsstrongbrandequityandhighmarketshare.
Chart16:Milkpricehasbeenontherise
Chart17:Wheatpricebenign
Source:Company,Edelweissresearch
0
50
100
150
200
250
1Feb
05
1Jun
05
1Oct05
1Feb
06
1Jun
06
1Oct06
1Feb
07
1Jun
07
1Oct07
1Feb
08
1Jun
08
1Oct08
1Feb
09
1Jun
09
1Oct09
1Feb
10
1Jun
10
1Oct10
1Feb
11
1Jun
11
1Oct11
0
40
80
120
160
200
1Feb
05
1Jun
05
1Oct05
1Feb
06
1Jun
06
1Oct06
1Feb
07
1Jun
07
1Oct07
1Feb
08
1Jun
08
1Oct08
1Feb
09
1Jun
09
1Oct09
1Feb
10
1Jun
10
1Oct10
1Feb
11
1Jun
11
1Oct11
Totalinputcosthasrisen21%onan
average(inflationcontributed10%)
inCY10
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Chart18:Barleypricestabilizing
Chart19:RobustvolumegrowthdespitepricehikeinHFD
Chart20:Grossmarginrobustdespiterawmaterialinflation
Source:Company,Edelweissresearch
0
40
80
120
160
200
1Feb
05
1Jun
05
1Oct05
1Feb
06
1Jun
06
1Oct06
1Feb
07
1Jun
07
1Oct07
1Feb
08
1Jun
08
1Oct08
1Feb
09
1Jun
09
1Oct09
1Feb
10
1Jun
10
1Oct10
1Feb
11
1Jun
11
1Oct11
0.0
3.6
7.2
10.8
14.4
18.0
CY06 CY07 CY08 CY09 CY10
(%)
Volume Price
30.8
32.2
33.6
35.0
36.4
37.8
CY06 CY07 CY08 CY09 CY10
(%)
Grossmargin
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Valuation
GSKsbroadproductportfolioprovidesagoodplayonIndianprocessedfoodspendingby
virtue of its strong presence in underpenetrated and highgrowth categories. Its
positioning on the health and wellness platform backed by strong brand image of key
brandHorlicks
is
progressive.
This,
combined
with
demonstrated
ability
to
enter
new
categories and continuous innovations,justifies robust growth and rerating of the stock
overthepastfiveyears.
ThecompanydominatestheHFDspacewith~70%marketshare.Itsgrowingfocusonhigh
growthnonHFDfoodandbeveragecategoriesreinforcesourbelief inthecompanyshigh
growthpotential.Wehaveseenthatfoodcompanies, likeNestleandJubilantFoodworks,
trade at a premium compared to other stocks in the consumer goods sector owing to
establishedpresenceinthefastestgrowingfoodsbusiness.Also,webelieveprocessedfood
companies will grow much faster visvis nonfood consumer companies and thereby
deserveapremiummultiple.OurtargetforGSKis24xtwoyearsforward,whichonCY13E
EPSofINR119.9givesusavalueof~INR2,900.WithGSKbeingpresentmainlyinHFDandits
nonHFD
presence
to
be
restricted
to
niche
and
premium
segment,
we
expect
it
to
trade
at
a discount to Nestle however current valuation is likely to sustain. Hence, we initiate
coverageonthestockwithaBUYrecommendation.Onrelativereturnbasis,thestock is
ratedSectorPerformer.
Chart21:1yearforwardpricebandchart
Source:Company,Edelweissresearch
0
1,000
2,000
3,000
4,000
5,000
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
(x)
8x
16x
24x
40x
48x
32x
Multipleof24xonCY13EEPSof
INR119.9givesavalueofINR2,900
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EdelweissSecuritiesLimited
Table2:Valuationsnapshot
Priceason09th
Jan2012 Source:Company,Edelweissresearch
*
CY
numbers
#
Bloomberg
estimates
Company Market Mcap Divyield
(%)
CAGR
(%)
Price(INR) (INRbn) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11E FY12E FY13E FY13E FY1113E
FMCG
Asian
Paints 2,682
25 7 8 7.9 9 4.7 1 15 .2 3 0.5
28.3
23.3
19.0 17.6 14.2 43.3 38.0 38.8 2.4 14.5
Colgate 987
134 29.6 31.2 36.7 33.3
31.6
26.9
24.6 22.6 19.0 113.4 101.6 101.4 3.1 11.3
Dabur 98
170 3.3 3.7 4.5 30.1
26.2
21.8
22.8 18.7 15.5 51.2 43.2 39.7 1.6 17.4
Emami 327
49 15.1 16.9 20.7 21.6
19.3
15.8
19.6 17.4 13.1 34.8 35.9 40.2 2.2 17.1
Godrej
Consumer
386
125 14.9 16.8 20.8 25.9
23.0
18.6
22.3 18.4 14.9 35.9 28.2 28.7 2.2 18.1
GSK
Cons umer* 2,512
10 6 7 1.3 8 4.3 1 00 .4 3 5.2
29.8
25.0
22.0 18.7 15.3 32.8 34.5 34.2 1.6 18.6
Hindustan
Uni lever 393
850 9.8 11.5 13.5 40.1
34.2
29.2
34.8 28.3 23.5 79.8 80.4 75.2 2.1 17.2
ITC 202
1575 6.6 8.0 9.4 30.5
25.4
21.5
19.7 17.0 14.1 33.2 36.1 38.6 2.8 19.1
Marico 153
94 4.7 5.2 6.6 32.8
29.5
23.3
24.0 20.1 15.8 30.3 30.9 31.4 1.2 18.7
Nestle* 4,088
3 94 8 8.7 1 06 .2 1 29 .9 4 6.1
38.5
31.5
31.2 25.1 20.1 119.1 96.6 82.6 1.9 21.0
United
Spirits 514
67 35.1 36.9 46.4 14.6
13.9
11.1
10.5 9.3 8.3 11.6 10.8 12.5 2.7 14.9
United
Breweri es # 414
109 6.0
7.6
10.9
68.6
54.5
38.1
32.3
26.1
18.6
14.3
15.5
17.9
0.3
34.2
Pidi lite# 144
73 6.4
6.6
8.2
22.4
21.8
17.5
15.3
14.5
11.7
31.2
27.5
27.9
1.7
13.1
Britannia# 450
5 4 1 0.4
15.9
20.0
43.2
28.3
22.5
28.6
19.0
15.2
40.5
41.4
48.0
2.2
38.5
FMCG Mean 33.9x 28.9x 23.3x 23.3x 19.4x 15.8x 53.2 48.7 47.6 2.2 19.6
FMCG Mean(marketcapwtdaverage) 34.0x 29.0x 24.4x 24.6x 20.7x 17.0x 56.4 54.1 52.5 2.4 18.0
FMCG Mean(exNestle) 29.5x 26.1x 21.6x 21.9x 18.8x 15.4x 46.6 43.9 44.1 2.2 17.1
ROE(%)P/E(x) EV/EBITDA(x)DilutedEPS(INR)
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KeyRisks
Rawmaterialpriceinflation
Withmilkpowder,milkandmaltextractbeingmajorcostdriversforGSK,food inflation is
oneofthekeyrisksfacedbythecompany.Inthepastoneyear,atthewholesalelevel,milk
pricessurged20%.Maintainingmarginwouldbeachallengeinthecurrentscenarioofrising
inflation. In addition, the company has been increasing its A&P spending, which could
furtherpressurisecosts.
Competitiongettingstiffer
Theprocessedfoodsector isgrowingsignificantlyandallmultinationalaswellasdomestic
companiesareaggressively innovatingandenhancingeffortsto increasecontributionfrom
this segment. GSKwill, therefore,need todrive itsresources towards augmenting A&P to
back up sales. Additionally, the scope for product differentiation in malted HFD is less in
termsofthenutritionalproposition.Thisaspectmakescompetitionstifferinthissegmentas
companieshavetoinnovatetowardsproductdevelopment.
Competitionto
HFDs
from
other
categories
Themaltedhealthfooddrinkcategory isstillat lowpenetrationlevelsandfacesresistance
fromcategoriesliketea,coffee,juicesandbreakfastcereals.
Productfailure
ApartfromHFD,newproductsfacegreaterriskoffailure.HorlicksChillDoodhandLucozade
havefailedtomakeanimpactinthemarket.
Economicslowdown
Urban sales contribute 73% to revenue. A slowdown in economic growth may negatively
affectthecompanysbusiness.
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CompanyDescription
GSK is a leading healthcare company in India with GlaxoSmithKline, UK, as parent. It is
Indias leading health food drinks manufacturer with growing presence in categories like
biscuits, noodles, snacks, sports drinks, glucose powder and OTCs. The company has
manufacturing facilities in Nabha (Punjab), Rajamundry (Andhra Pradesh) and Sonepat
(Haryana).It
has
astrong
marketing
and
distribution
network
in
India
with
direct
coverage
ofover700,000retailoutlets.
Fig.6:Businessmix
Source:Company,
Edelweiss
research
Healthfooddrinks
HFDproductscontribute94%tothecompanysrevenue.
The category is estimated to be worth INR35bn with two key variants viz. white (~75%
market)andbrown(~25%market).
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Chart22:WhitedominatesHFDssalesmix
Source:Company,Edelweissresearch
WhiteHFD
Horlicks:Horlicks is Indias leadinghealthfooddrinkbrandwhich ispresentsince1930s.It
has undergone through many revamps and is today offered in various flavours and
variantsvanilla, toffee, elaichi and chocolate. To specifically cater to preschool children
andchildren inthe46agegroup,thedrink isavailableasJuniorHorlicks123andJunior
Horlicks456.MothersHorlicksisanutritionalsupplementtargetedatpregnantandbreast
feedingwomen.Horlicksliteisvariantespeciallydesignedforhealthconsciousconsumers.
Table3: HorlicksjourneywithHFD
Source:Company,Edelweissresearch
White
75%
Brown
25%
Year Brand Comments
1997 Mother'sHorl icks Forti fi edwithDHAandsupplementedwith26essentialnutrients,designedkeepingin
mindthespecial needsofpregnantwomenand breastfeedingmothers
2005 Horl icksLite Formulated
keeping
in
mind
the
needs
of
adults
and
people
with
diabetes;
high
fibre
and lowin fat
2006 Horl icksJunior123 Es peci al lyintroducedforpreschool children,offers completenutritionalrequirements
2008 Women'sHorl icks Enri chedwithHEMOCALTMnutrients:auniquecombinationofgoodqualitymilk
protein,and 100%dailyrequirements,promises toaddressthedailynutritionalneeds
ofbusy,overstressedmodernIndianwomen
2011 Horl icks Gold Ata30%premiumtobase,targetedaturbanconsumers,and offers highernutrition.
Horlicks Goldis availablein twovariantsGoldenMaltand ChocolateDelightin
cartons pricedatINR195and ja rs pricedatINR200.Thoughpricedhigher,has similar
marginprofileas thebasevariant
HorlicksdominatethewhiteHFD
market
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Table4: Horlicksrevenuesplit
Source:Company,Edelweissresearch
BrownHFD
Horlicks:ThoughitdominateswhiteHFD,ChocolateHorlicksisalsopresentinbrownHFD.
Boost: Boost is a health food drink brand in chocolate flavour. It is more of a granular
productand ispromotedasanenergyboosterwiththepresenceof iron,zinc,magnesium
andothervitaminsandminerals.
Maltova:Maltova isachocolatehealth fooddrinkwithavaluepropositionof tastealong
withhealth,
targeted
at
children.
It
was
acquired
from
Jagatjit
Industries
in
2000.
Viva:Vivaisafamilyhealthdrinkwithacombinationofessentialvitaminsandmineralsina
blendofmaltedbarley,wheatandmilk.
NonHFDcategories
NonHFDaccountsfor6%ofGSKsrevenue.
Table5:GSK'sJourneyinnonHFD
Source:Company,Edelweissresearch
HorlicksBiscuits:Biscuitsisoneofthefastestgrowingcategoriesinthedomesticconsumer
sector with value market size of more than INR120bn in FY11. This category is also the
secondlargestrevenuecontributortothecompany,accountingforINR1.4bn(5.5%ofsales)
Brand Percentagecontribution
Horlickscorebrand White ~73%
Horlickscorebrand Chocolate ~7%
JuniorHorl icks ~10%
MotherHorlicks ~2%
HorlicksLite ~2%
HorlicksGold ~3%
Women'sHorlicks ~3%
Year Brand Comments
1992 Horl i cksBi s cui ts P roduc tfocusesonpowerofcalcium
2005 Li te
Bite
Biscuits Nutritional
food
for
diabitic
and
health
concious
2005 Fl avorDrink Chocolate,Vanilla,HoneyBuzz,Standard,Toffee,
Elaichi2009 Horl i cksChilled Chocolateflavordrinkforkids
2009 Horl i cksNutriBar Lowfatlowsugar,fillerin betweenmeals
2009 Acti veGrow Nutritiousproductlaunchedforinfant
2009 Juni orHorlicks
Biscuits
Nutritional foodforpreschool kidsas partoftheir
dailydiet
2010 Horl i cksFoodles Abrandofinstantnoodles
2010 Gl axos eD GlaxoseDunderHorlicks brandforEastIndia.
Boost
2004 Boos tEnergyShake Readytodrinkmilkshaketargetedatkids
2010 Boos tGlucose New
glucose
drink
launched
in
North
and
West
Lucozade
20 10 Luc oza deSpor t I nter na ti ona lIsotonicsports drink
Avarietyofnewproductslaunched
toincreasesharefromtheNonHFD
category
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inCY10.Currently,GSK isamarginalplayer in thiscategory,withamarketshareof1.2%.
The company is present in the biscuits category viaHorlicksBiscuits in three flavors and
HorlicksCookies.ItsLiteBitebiscuitscatertodiabeticsandhealthconsciousconsumers.
Nutribar:GSK launchedHorlicksNutribar inFebruary2009. It isahighnutritioncerealbar
offered as a healthy snack between mealsand provides convenience to urbancustomers.
Howeverithasnowbeenwithdrawnduetoissueswithoutsourcingmanufacturingfacilities.
Foodles: Growth of instant noodles, the INR18bn category growing 25% annually, is
expectedtodoubleinthecomingthreefouryears.GSKenteredthesegmentinIndiaatthe
beginning of CY10. Foodles is present in multigrain and wheat variants with a high
nutritionalvaluepropositioncomparedtoothernoodlesbrands.Thisproductcomeswitha
vitaminpackedhealthmakersachet.
Consignmentsales
Incomeformsapartofauxiliarysellingcommission
Crocin:Crocin isatrustedbrandofpainrelief tabletandalsohasvariants likeCrocinPain
Relief,CrocindropsandCrocinQuick.
Iodex:IodexisatrustedbrandinthetopicalbalmsegmentandispresentinIndiasince1919.
Therehavebeenrelaunchesofthisproductwithenhancedformulations.
Eno:EnoisaleadingantacidbrandinIndiaandispresentinsachets,bottlesandtablets.
Sensodyne:Sensodyneisatoothpastemarketedforindividualswithsensitiveteethand/or
dentinehypersensitivity.
Exports
GSK exports HFD products to Sri Lanka, Bangladesh, Nepal and the Middle East. Exports
contributed~6%
to
the
top
line
in
Q3CY11
and
management
expects
this
segment
to
grow
atover15%inthecomingquarters.
Auxiliarybusiness
has
astrong
brandequitybackedbydynamic
innovation
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Keymanagementpersonnel
Mr. Simon Scarff (Non Executive Chairman) is a chartered accountant, company secretary
andL.L.B.HebeganhiscareeratHorlicksLimited,UK(nowaspartofGlaxoSmithKlineplc.).
He was initially responsible for marketing and sales of the companys products in Nabha,
Punjab in India in 1963. He was appointed as the Coordinator on the Consumer Brands
Business inNigeria in1974.Heservedas theRegionalGroupManger in1976,responsible
forthe
Middle
East,
initially
based
in
Cyprus
and
later
in
Dubai.
He
was
then
appointed
in
IndiaastheManagingDirectoron1stofJuly,1978andledthecompanytillOctober2002.
Mr.ZubairAhmed(ManagingDirector)hasbeenheadingtheConsumerHealthcarebusiness
in the Indian Subcontinent region, as Managing Director, since 1st January, 2007. Mr.
Ahmedhasarobustexperienceofthirtyyearsofexperienceintheconsumersector.Before
joining GSK Consumer Healthcare, he served as the Managing Director of Gillette India
Limitedwherehewasassociatedwithforover14years.Mr.Ahmedhasalsoworkedwith
leadingcompanieslikeVoltasandUnileverinthepast.
Mr.KunalKashyap(NonExecutiveDirector) isaCharteredAccountant.He iscurrently the
ChairmanandManagingDirectorofAllegroCapitalAdvisorsPvt.Ltd.,aleadingInvestment
Bank.
He
was
the
founder
and
executive
director
of
Celstream
Technologies
Pvt.
Ltd.,
a
leading software product engineering organization. He was a global partner at Arthur
Anderson between 1994 and 2000, when he was responsible for developing the firms
practiceinSouthIndia.HehasalsobeenresponsibleformanagingthetreasuryandBusiness
Development functions for Asia Pacific at Digital Equipment Corporation. Since March 28,
2001,hehasbeenaDirectorofthiscompany.
Mr.P.Dwarakanath(NonExecutiveDirector)workedasDirectorHumanResourceofGSK
ConsumerHealthcare tillJuly31,2006.Mr.Dwarakanathhasover34yearsofexperiencein
Engineering,Chemical,PharmaandConsumerGoodsIndustryinthecorefunctionalareasof
Legal, Employee Relations, Management Development, Leadership Development and HR
management.
Mr. Praveen Gupta (Director Operations)joined GSK Consumer Healthcare in 1975. Since
then he has held positions of increasing responsibility in Finance, Procurement, Materials
Management and Supply Chain Management. He was previously Site Director at Nabha
facilityandOperationalExcellenceCountryChampionforGMSConsumerHealthcare,India.
Intheseroleshehasmadesignificantcontributionstowardstheevolutionandperformance
of the Nabha site and has made significant successful Operational Excellence program in
India. Since January, 24, 2006, Mr. Praveen K Gupta is holding the position of Director
Operations of the Company. In this role he has made significant success in building up a
strategy aligned to business growth, strong performance and compliance culture and has
madesignificantcontributiontocostreductioninitiatives.
Mr. Ramakrishnan Subramanian (Director, Finance and IT)joined the company in 2006 as
DeputyCFOandthenworkedasDirector FinanceandITfromDecember2007.Hehasarich
experience of 35 years in consumer sector at several positions in Finance & procurement
functionsacrossseveralfoodcategoriesinHindustanUnileverLtd.
He headed the Food and Beverages division between 20002005 when he conceptualized
andimplementedseveralmeasurestowardscostreductionandprofitabilitygrowth.Lately,
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FinancialOutlook
17.7%revenueCAGR(CY1113E)likelyonbrandequity,newlaunches
With the companys strong brand equity in the HFD category, continued pace of new
launches and increasing health consciousness amongst consumers, we are confident that
GSKwillpost17.7%revenueCAGRoverCY1113E.
Chart23:Robustrevenuegrowth
Source:Company,Edelweissresearch
EBITDAmarginlikelytobestableoverCY1113E
WeexpectEBITDAmargintobestableoverCY1113E.Withhighinputcosts,thecompanyis
betterplacedonthepricingfrontcomparedtocompetitors.GSKhastakenpricehikesinthe
pasttooffsetinputcostinflationwithoutcompromisingonvolumes.
Chart24:EBITDAmarginstable
Source:Company,Edelweissresearch
0.0
6.0
12.0
18.0
24.0
30.0
0
8,000
16,000
24,000
32,000
40,000
CY09 CY10 CY11E CY12E CY13E
(%)
(INRmn)
Revenue Revenuegrowth
15.0
16.0
17.0
18.0
19.0
20.0
0
1,500
3,000
4,500
6,000
7,500
CY09 CY10 CY11E CY12E CY13E
(%)
(INRmn)
EBITDA EBITDAmargin
Weexpecttherevenuetogrowata
CAGRof17.7%overCY1113E
ExpecttheEBITDAmarginstobe
stable
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PATlikelytopost19%CAGRoverCY1113E
PAT is likely to post 19% CAGR over CY1113E on back of new product launches and
expansionofdistributornetwork.
Chart25:StrongPATgrowth
Source:Company,Edelweissresearch
Strongbalancesheetcancreateopportunitiesforinorganicgrowth
A strong balance sheet with INR9.7 bn cash balance in CY10, steady operating cash flows
andnodebtgivesGSKtheabilitytopursueinorganicgrowthopportunitiesinthefuture.
0.0
7.0
14.0
21.0
28.0
35.0
0
1,100
2,200
3,300
4,400
5,500
CY09 CY10 CY11E CY12E CY13E
(%)
(INRmn)
PAT PATgrowth
Weexpecttheprofittogrowata
CAGRof19%overCY1113E
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GSKConsumer
FinancialStatements
Incomestatement (INRmn)
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Netrevenues 19,215 23,061 26,975 31,795 37,567
Otheroperating
income 557 624 686 755 830
Total Operatingincome 19,772 23,685 27,661 32,550 38,397
Costofmaterials 7,140 8,649 10,477 12,183 14,281
Grossprofit 12,632 15,036 17,184 20,368 24,116
Employeecosts 2,007 2,297 2,630 3,100 3,663
Advertisement&salescosts 2,675 3,706 4,181 4,960 5,879
Others 4,327 4,668 5,328 6,280 7,401
EBITDA 3,623 4,365 5,045 6,028 7,173
Depreciation 420 397 449 521 589
EBIT 3,203 3,968 4,597 5,507 6,584
Otherincome 376 576 732 835 989
EBITincl.otherincome 3,579 4,544 5,329 6,342 7,573
Netinterest
&
Finance
charges 41 26 40 42 44
PBT 3,539 4,518 5,289 6,300 7,529
Provisionfortaxation 1,211 1,520 1,745 2,079 2,485
CorePAT 2,328 2,999 3,543 4,221 5,044
ProfitaftertaxafterMin.Int.&Associate 2,328 2,999 3,543 4,221 5,044
Equitysharesoutstanding(mn) 42 42 42 42 42
EPS(INR)basic 55.4 71.3 84.3 100.4 119.9
Dilutedshares(mn) 42 42 42 42 42
EPS(INR)fullydiluted 55.4 71.3 84.3 100.4 119.9
CEPS(INR) 36.6 44.6 53.4 63.3 74.9
DPS 18 50 34 40 48
Dividendpayoutratio(%) 33 70 40 40 40
Commonsizemetrics(%)
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Costofmaterials 36.1 36.5 37.9 37.4 37.2
Employeecosts 10.2 9.7 9.5 9.5 9.5
Advertising&salescosts 13.5 15.6 15.1 15.2 15.3
Othergeneral expenditure 21.9 19.7 19.3 19.3 19.3
Depreciation 2.1 1.7 1.6 1.6 1.5
Netinterestexpenditure 0.2 0 .1 0.1 0 .1 0.1
EBITDAmargin 18.3 18.4 18.2 18.5 18.7
EBITmargin 16.2 16.8 16.6 16.9 17.1
Netprofitmargin 11.8 12.7 12.8 13.0 13.1
Growthmetrics(%)
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Revenues 24.6 20.0 17.0 17.9 18.2
EBITDA 32.1 20.5 15.6 19.5 19.0
PBT 23.9 27.7 17.1 19.1 19.5
Netprofit 23.6 28.8 18.2 19.1 19.5
EPS 23.6 28.8 18.2 19.1 19.5
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ConsumerGoods
Balancesheet (INRmn)
Ason31stDecember CY09 CY10 CY11E CY12E CY13E
Sharecapital 421 421 421 421 421
Reserves 8,630 9,180 11,065 13,310 15,994
Shareholders'funds 9,051 9,600 11,486 13,731 16,415
Sources
of
funds 9,051
9,600
11,486
13,731
16,415
Grossblock 5,585 5,990 7,090 8,090 8,990
Lessdepreciation 3,640 3,967 4,416 4,937 5,526
Netfixedassets 1,945 2,023 2,674 3,153 3,464
Capitalworkin progress 378 1,083 983 883 663
Investments 0 0 0 0 0
Currentassets 11,729 14,231 15,818 18,547 22,180
Inventories 2,660 3,120 3,373 3,967 4,677
Sundrydebtors 314 505 472 547 636
Cashand bankbalance 8,198 9,761 11,128 13,188 16,022
OtherCurrentAsset 220 344 344 344 344
Loansand advances 338 501 501 501 501
Current
liabilities
5,111
8,004
8,256
9,120
10,160
Liabilities 3,753 4,704 4,956 5,819 6,859
Provisions 1,358 3,300 3,300 3,300 3,300
Workingcapital 6,618 6,227 7,561 9,428 12,020
Miscexpenditure 110 267 267 267 267
Usesoffunds 9,051 9,600 11,486 13,731 16,415
BV(INR) 215 228 273 326 390
Freecashflow (INRmn)
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Netprofit 2,328 2,999 3,543 4,221 5,044
Add:Noncashcharge (96) (201) 489 563 633
Depreciation 420
397
449
521
589
Others (517) (598) 40 42 44
Grosscashflow 2,231 2,798 4,032 4,784 5,678
Less:Changes in WC 1,481 299 33 194 241
Cashfromoperations 3,712 3,097 4,065 4,977 5,919
Less:Capex 409 1,110 1,000 900 680
Freecashflow 3,303 1,986 3,065 4,077 5,239
Cashflowmetric
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Operatingcashflow 4,002 3,262 4,065 4,977 5,919
Financingcashflow (296) (905) (1,698) (2,017) (2,405)
Investingcash
flow (216) (1,110) (1,000) (900) (680)
Changein cash 3,491 1,247 1,367 2,060 2,834
Capex (409) (1,110) (1,000) (900) (680)
Dividendspaid (886) (2,452) (1,658) (1,975) (2,361)
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Ratios
YeartoDecember CY09 CY10 CY11E CY12E CY13E
ROAE(%) 28.1 32.8 34.5 34.2 34.1
ROACE(%) 38.3 42.6 43.6 43.7 43.7
Debtordays 7 6 6 6 6
Inventorydays 52 46 46 46 45
Payabledays 71 80 80 80 80
Cashconversioncycle(days) (12) (28) (28) (28) (29)
Currentratio 2.3 1.8 1.9 2.0 2.2
Operatingratios
YeartoDecember CY09 CY10 CY11E CY12E CY13E
Total assetturnover 2.3 2.5 2.6 2.5 2.5
Fixedassetturnover 9.5 11.6 11.5 10.9 11.4
Equityturnover 2.3 2.5 2.6 2.5 2.5
Dupontanalysis
YeartoDecember CY09 CY10 CY11E CY12E CY13E
NPmargin
(%) 12.1
13.0
13.1
13.3
13.4
Total assetsturnover 2.3 2.5 2.6 2.5 2.5
Leveragemultipl ier 1.0 1.0 1.0 1.0 1.0
ROAE(%) 28.1 32.8 34.5 34.2 34.1
Valuationparameters
YeartoDecember CY09 CY10 CY11E CY12E CY13E
DilutedEPS(INR) 55.4 71.3 84.3 100.4 119.9
YoYgrowth(%) 23.6 28.8 18.2 19.1 19.5
CEPS(INR) 36.6 44.6 53.4 63.3 74.9
DilutedP/E(x) 45.4 35.2 29.8 25.0 20.9
Price/BV(x) 11.7 11.0 9.2 7.7 6.4
EV/Sales(x) 5.1
4.2
3.5
2.9
2.4
EV/EBITDA(x) 26.9 22.0 18.7 15.3 12.5
Dividendyield(%) 0.7 2.0 1.3 1.6 1.9
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Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
AsianPaints BUY SP M Colgate HOLD SU M
Dabur BUY SP M Emami BUY SO H
GodrejConsumer BUY SO H HindustanUnilever BUY SO L
ITC BUY SO L Marico BUY SO M
NestleLtd HOLD SP L UnitedSpirits BUY SP H
RATING&INTERPRETATION
ABSOLUTERATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVERETURNSRATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVERISKRATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTORRATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
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GSKConsumer
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:[email protected]
VikasKhemani Head InstitutionalEquities [email protected] +912222864206
NischalMaheshwari CoHead InstitutionalEquities&HeadResearch [email protected] +912266233411
Coveragegroup(s)ofstocksbyprimaryanalyst(s):ConsumerGoods
AsianPaints,Colgate,Dabur,GodrejConsumer,Emami,HindustanUnilever,ITC,Marico,NestleLtd,UnitedSpirits
DistributionofRatings/MarketCap
EdelweissResearchCoverageUniverse
RatingDistribution* 119 47 15 184
*3stocksunderreview
MarketCap(INR) 111 57 16
Date Company Title Price(INR) Recos
Accessthe
entire
re ositor
of
Edelweiss
Research
on
www.edelresearch.com
RecentResearch
15Dec11 Consumer
Goods
MiddleIndiatodrive
consumptionstory;EdelFlash
08Dec11 Consumer
Goods
Cosmeticssetforamakeover;
EdelFlash
08Dec11 Consumer
Goods
Packingoffthevaluefor
moneydeal;EdelFlash
>50bn Between10bnand50bn