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SYNOPSIS

We initiated coverage of GSK

consumer Healthcare Ltd and set a

target price of Rs.202.00 for medium

term.

GlaxoSmithKline Consumer

Healthcare Limited engages in the

manufacture and sale of nutritional

foods and over the counter drugs

primarily in India.

During the quarter ended, the robust

growth of revenue is increased by

24.05% Rs.6330.00 million.

The company’s revenue and profit are

expected to grow at a CAGR of 19%

and 23% over 2008 to 2011E

respectively.

GSK Consumer Healthcare Ltd has

considered Dividend for the year

ended December 31, 2010.

Years Net sales EBITDA Net Profit EPS P/E

CY09 19840.50 4001.50 2327.80 55.34 38.85

CY 10E 24160.75 5125.79 3131.61 74.46 28.88

CY 11E 27060.04 5688.55 3482.05 82.79 25.97

Stock Data:

Sector: Food processing

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 2460.00/1255.00

Volume (2 wk. Avg.) 4347

BSE Code 500676

Market Cap (Rs.In mn) 90429.0

Share Holding Pattern

1 Year Comparative Graph

GSK Consumer BSE SENSEX

C.M.P: Rs2150.00 Target Price: Rs.2429.00 Date: 20th Jan 2011 BUY

GlaxoSmithKline Consumer Healthcare Ltd Result Update: Q3 CY 10

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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 Health 2150.00 90429.0 66.62 2.00 9.99 180.00

Nestle 3670.00 353845.7 75.52 48.60 60.87 485.00

ITC 173.00 1334284.8 5.83 29.67 9.51 1000.00

Dabur 100.00 174159.4 2.47 40.49 23.20 200.00

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

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

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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

Investment Highlights

Q3 CY10 Results Update

GlaxoSmithKline Healthcare (GSK) has reported phenomenal rise of 30.87% net

profit for the quarter ended September 30, 2010. During the quarter, Net profit is

surged to Rs. 785.7 million for the quarter ended Sep.30, 2010 against Rs 600.2

million in the same quarter a year ago, rise of 30.87%. Net sales stood at Rs

Products

Nutritional

Vending

OTC

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6,330.00 million for the quarter ended Sep.30, 2010 against Rs 5102.70 million

for the quarter ended Sep.30, 2009, rise of 24.05%. The EPS of the company is

stood at Rs.18.68 for the quarter ended September 30, 2010.

Quarterly Results - Standalone (Rs in mn)

As At Sep-10 Sep-09 %change

Net sales 6330.00 5102.70 24.05

PAT 785.50 600.20 30.87

Basic EPS 18.68 14.27 30.87

Break up of Expenditure

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY08 CY 09 CY 10E CY 11E

Description 12m 12m 12m 12m

Net Sales 15923.00 19840.50 24160.75 27060.04

Other Income 459.60 267.70 475.78 547.14

Total Income 16382.60 20108.20 24636.53 27607.18

Expenditure -13052.60 -16106.70 -19510.74 -21918.63

Operating Profit 3330.00 4001.50 5125.79 5688.55

Interest -69.70 -42.70 -26.94 -28.28

Gross profit 3260.30 3958.80 5098.85 5660.27

Deprecation -419.50 -420.20 -392.68 -424.09

Profit Before Tax 2840.80 3538.60 4706.17 5236.17

Tax -957.50 -1210.80 -1574.55 -1754.12

Profit After Tax 1883.30 2327.80 3131.61 3482.05

Equity capital 420.60 420.60 420.60 420.60

Reserves 7188.20 8630.40 11762.01 15244.07

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 44.78 55.34 74.46 82.79

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E

Description 3m 3m 3m 3m

Net sales 6640.40 5525.00 6330.00 5665.35

Other income 79.70 129.10 129.60 137.38

Total Income 6720.10 5654.10 6459.60 5802.73

Expenditure -5153.80 -4479.60 -5175.10 -4702.24

Operating profit 1566.30 1174.50 1284.50 1100.49

Interest -5.70 -6.20 -7.30 -7.74

Gross profit 1560.60 1168.30 1277.20 1092.75

Deprecation -95.70 -92.80 -99.60 -104.58

Profit Before Tax 1464.90 1075.50 1177.60 988.17

Tax -503.30 -358.00 -392.10 -321.15

Profit After Tax 961.60 717.50 785.50 667.01

Equity capital 420.60 420.60 420.60 420.60

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 22.86 17.06 18.68 15.86

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Key Ratios

Particulars CY 08 CY 09 CY 10E CY 11E

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

EBITDA Margin (%) 20.91% 20.17% 21.22% 21.02%

PBT Margin (%) 17.84% 17.84% 19.48% 19.35%

PAT Margin (%) 11.83% 11.73% 12.96% 12.87%

P/E Ratio (x) 48.02 38.85 28.88 25.97

ROE (%) 24.75% 25.72% 25.71% 22.23%

ROCE (%) 49.28% 48.85% 45.30% 39.02%

EV/EBITDA (x) 27.16 22.6 17.64 15.9

Book Value (Rs.) 180.9 215.19 289.65 372.44

P/BV 11.88 9.99 7.42 5.77

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Charts:

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Outlook and Conclusion

At the current market price of Rs.2150.00, the stock is trading at 28.88 x

CY10E and 25.97 x CY11E respectively.

Earning per share (EPS) of the company for the earnings for CY10E and CY11E

is seen at Rs.74.46 and Rs.82.79 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 19% and

23% over 2008 to 2011E respectively.

On the basis of EV/EBITDA, the stock trades at 17.64 x for CY10E and 15.90 x

for CY11E.

Price to Book Value of the stock is expected to be at 7.42 x and 5.77 x

respectively for CY10E and CY11E.

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.2429.00 for Medium term investment.

Industry Overview

According to a report published by market research firm RNCOS in April 2010, titled

‘Indian Food and Drinks Market: Emerging Opportunities’ the Indian food and

beverages market is expanding rapidly and is projected to grow at a compound annual

growth rate (CAGR) of about 7.5 per cent during 2009-13 and would touch US$ 330

billion by 2013.

The food retail industry, currently at US$ 70 billion is predicted to grow more than

double to US$ 150 billion by 2025, according to KPMG, a global audit and advisory

firm. India’s food retail industry is poised for exponential growth. With the evolution of

innovative food processing capacity and the emergence of organized retail, change in

consumption patterns along with fast changing demographics and habits is fuelling

the next growth trajectory for the food industry in India.

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The Indian fast food market is growing at an annual rate of 25-30 per cent, according

to a report published by market research firm RNCOS in September 2010, titled

‘Indian Fast Food Market Analysis’. Foreign fast food chains are aggressively

increasing their presence in the country. For instance, Domino’s has planned to open

60-65 outlets every year for the next three years (2010-2012) while Yum Brands Inc is

also preparing for massive expansion across the country with plans to open 1000 fast

food outlets by 2015.

Exports

Exports of agricultural products from India are expected to cross around US$ 22

billion mark by 2014 and account for 5 per cent of the world’s agriculture exports,

according to the Agricultural and Processed Food Products Export Development

Authority (APEDA).

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

animal products, other processed foods and cereals stood at US$ 7,347.07 million in

2009-10, according to DGCIS annual data published by APEDA.

Moreover, India exported schedule products, floriculture and seeds, fruits and

vegetables, processed fruits and vegetables, livestock products, other processed foods

and cereals worth US$ 1.77 billion between April-June 2009-2010, according to

APEDA.

Beverages

According to a report published by market research firm RNCOS in August 2009,

titled "Indian Non-Alcoholic Drinks Forecast to 2012", 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.

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.

Major Investment

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Some of the major investments in the industry are:

• Chennai-based FMCG company CavinKare is planning to invest around US$

109.50 million over the next two years in various expansion plans, including a

greenfield facility for namkeen at Thane, cool drinks in the North and others.

• Nestle, the fast moving consumer goods major, plans to invest US$ 50.49

million to set up its first research and development (R&D) centre in India at

Manesar in adjoining Gurgaon district. The facility will be made operational by

July 2012.

• Packaged consumer goods company GlaxoSmithKline Consumer Healthcare

(GSKCH) plans to invest over US$ 64.87 million on repositioning milk food

drink Horlicks as the company’s umbrella brand.

• Yum! Restaurants India, the operator of the Pizza Hut , KFC and Taco Bell

restaurant chains, plans to invest US$ 100 million to more than treble the

number of eateries it operates across the country to 1,000 by 2015, said Niren

Chaudhary, Managing Director, Yum! Restaurants India.

• FieldFresh Foods , joint venture of the Bharti Enterprises and Del Monte Pacific

Ltd, has inaugurated their Research and Development and manufacturing

facility in Hosur, Tamil Nadu at an investment of US$ 25.93 million.

• Agri solutions provider Buhler India plans to invest US$ 22.55 million in an

integrated manufacturing unit and other expansion projects in the next four

years, in line with its plans to achieve US$ 225.49 million turnover by 2014.

• Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in

India in the next two years.

• Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to

set up a new bottling plant in Karnataka, India.

Government Initiatives

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• The Centre has announced a series of new initiatives which include a separate

policy at the state level, thrust on contract farming and making the sector tax-

free.

• The government plans to open 30 mega food parks by the end of the 11th Five

Year Plan (2007-2012).

• In the Union Budget of 2010-11, the government has announced setting up of

five more mega food park projects in addition to the ten already being set up.

Moreover, external commercial borrowing will be made available for cold storage

or cold room facility including for farm level pre cooling, for preservation or

storage of agriculture and allied produce, marine products and meat.

As per information published on MOFPI

• Income Tax rebate is allowed, 100 per cent of profits for 5 years and 25 per cent

of profits for the next 5 years, for new industries to process, preserve and

package fruits and vegetables.

• Excise duty on ready to eat packaged foods and instant food mixes has been

brought down to 8 per cent from 16 per cent.

• Excise duty on aerated drinks has been reduced to 16 per cent from 24 per

cent.

Looking ahead

According to an industry body and E&Y study on the Indian food industry called

'Flavours of Incredible India – Opportunities in the Food Industry', published in

October 2009, investment opportunities in the Indian food industry are set to shoot up

by a huge 42.5 per cent to US$ 181 billion in 2015 and to US$ 318 billion by 2020.

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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.

Firstcall India Equity Research: Email – info@firstcallindia.com

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