Stock market Result Update on GlaxoSmithKline Pharma for 2QCY2011

Stock market Result Update on GlaxoSmithKline Pharma for 2QCY2011 with a Neutral recommendation.

GlaxoSmithKline Pharma (Glaxo) reported its 2QCY2011 results, which were mostly in-line with our estimates on the top-line and PAT level. However, the company’s OPM came in lower than our expectation at 33.2% (estimated 34.7%). We remain Neutral on the stock.

Lower-than-expected performance on the on the operating front: Glaxo reported net sales of `560cr (`498cr), up 12.5% yoy, in-line with our estimates of `563cr. Gross margin at 63.2% was mostly in-line with our expectations; however, OPM at 33.2% (36.5%) was below our estimate of 34.7%. The company reported net profit of `148cr (`129cr), growth of 14.4% yoy. This was broadly in-line with our expectation of `154.4cr. The company reported net profit growth on the back of higher-than-expected other income, despite lower-than-expected OPM.

Outlook and valuation: We expect net sales to post a 13.9% CAGR to `2,788cr and EPS to register a 14.6% CAGR to `86.9 over CY2010–12E. At current levels, the stock is trading at 29.5x and 24.4x CY2011E and CY2012E earnings, respectively. We maintain our estimates and, hence, remain Neutral on the stock.