For 1QCY2011, GSK Consumer posted numbers largely in-line with our estimates. The top line came in below our estimates at `710cr, a growth of 9.5% yoy. On the operating front, the company recorded flat margins. Earnings for the quarter grew by 15% yoy to `110.6cr (`96.2cr). We downgrade our rating on the stock to Reduce from Accumulate.
Steady top line; margin expands: GSK Consumer registered a single digit top-line growth of 9.5% yoy to `710.1cr (`648.4cr), aided by ~6.5% volume (below our expectation) and ~5% value growth (in-line with our expectation). The company’s operating margin remained flat during the quarter at 20.5% despite gross margin expansion, on account of higher staff cost and other expenses. Earnings registered growth of 15% yoy, aided by higher other income and a marginal dip in tax rate.
Outlook and valuation: We have tweaked our numbers post the results. At the CMP, the stock is trading at 24.3x CY2012E EPS of `98.3, which is ~40% higher to its 5yr average P/E of 17.4x. Moreover, at current levels the stock is trading at ~80% premium to Sensex (same level as April, 2002) which we believe is not sustainable. Hence, we recommend Reduce view on the stock.
