Glaxo Result Update

1QCY2010 Result Update I Pharmaceutical
April 28, 2010

GlaxoSmithKline Pharmaceuticals REDUCE
CMP Rs1,899
Performance Highlights Target Price Rs1,700
Investment Period 12 Months
GlaxoSmithKline Pharmaceuticals (Glaxo), the third largest player in the
domestic market, reported 1QCY2010 numbers which were ahead of our Stock Info
estimates. Net Sales came in at Rs541.1cr (Rs457.2cr) up 18.4% yoy as
against our estimate of Rs514.2cr and was primarily driven by the Vaccine and Sector Pharmaceutical
Dermatology Segments. Glaxo reported OPM of 37.0%, which expanded by
Market Cap (Rs cr) 16,082
100bp on the back better Product mix. Net Profit stood at Rs161.2cr
(Rs143.2cr), up 12.6% yoy. We recommend a Reduce on the stock. Beta 0.2
Top-line growth beats estimates: Glaxo reported Net Sales of Rs541.1cr 52 WK High / Low 1,940/1,070
(Rs457.2cr), up 18.4% yoy and was ahead of our estimate of Rs514.2cr.
Top-line growth came on the back of the Vaccine and Dermatology Segments. Avg. Daily Volume 7763
During the quarter, the company launched the anti-fungal antibiotic, Face Value (Rs) 10
Mycamine and Dermatology products from the Sitefel basket. The company
reported OPM of 37.0%, which expanded by 100bp on the back of better BSE Sensex 17,380
Product mix in spite of Employee expenses increasing by 27.3% to Rs55.3cr Nifty 5,216
(Rs43.5cr) and Other expenses rising 21.4% to Rs82.5cr (Rs67.9cr). The
company reported Net Profit of Rs161.2cr (Rs143.2cr), up 12.6% yoy on the Reuters Code GLAX.BO
back of lower Total Other Income.
Bloomberg Code GLXO@IN

Outlook and Valuation: Glaxo is the third largest pharmaceutical player in the Shareholding Pattern (%)
Indian market with a market share of 5%. We expect Net Sales to post a
CAGR of 12.7% to Rs2,422cr and EPS to clock CAGR of 11.0% to Rs73.9 over Promoters 50.7
CY2009-11E. At Rs1,899, the stock is trading at 29.1x and 25.7x CY2010E MF/Banks/Indian FIs 18.3
and CY2011E Earnings, respectively. Adjusting the expected cash per share of
Rs248 as on CY2011E, the company is trading at 28.0x CY2010E and 24.5x FII/NRIs/OCBs 15.2
CY2011E Earnings. Given the rich valuations, we recommend a Reduce on the Indian Public 15.8
stock, with a Target Price of Rs1,700, valuing the company at 23x (25%
premium to 5-year historical average) CY2011E Earnings. Abs. (%) 3m 1yr 3yr

Sensex 6.6 58.0 25.0

Glaxo 23.8 61.1 62.7

Key Financials
Y/E December (Rs cr) CY2008 CY2009 CY2010E CY2011E
Net Sales 1,693 1,908 2,145 2,422
% chg 5.3 12.7 12.4 12.9
Net Profit 591.1 507.9 554.1 626.2
% chg 7.0 (14.1) 9.1 13.0
EPS (Rs) 69.8 60.0 65.4 73.9
EBITDA Margin (%) 35.2 35.3 34.8 35.1
P/E (x) 27.2 31.7 29.1 25.7 Sarabjit Kour Nangra
RoE (%) 31.3 29.8 29.0 28.9 Tel: 022 – 4040 3800 Ext: 343
RoCE (%) 39.7 39.9 38.8 38.8 E-mail: sarabjit@angeltrade.com

P/BV (x) 10.2 9.0 7.9 7.0
Sushant Dalmia
EV/Sales (x) 8.9 7.5 6.6 5.8
Tel: 022 – 4040 3800 Ext: 320
EV/EBITDA (x) 25.4 21.3 19.1 16.5 E-mail: sushant.dalmia@angeltrade.com
Source: Company, Angel Research.

1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

Glaxo I 1QCY2010 Result Update

Exhibit 1: 1QCY2010 Performance (Standalone)
Y/E Dec (Rs cr) 1QCY2010 1QCY2009 % chg. CY2009 CY2008 % chg.
Net Sales 541 457 18.4 1,870 1,660 12.7
Other Income 43.8 30.0 45.7 120.1 118.5 1.4
Total Income 585 487 20.1 1,991 1,779 11.9
PBIDT 200.2 164.5 21.7 654.9 577.7 13.4
Operating Margin (%) 37.0 36.0 35.3 34.8
Interest 0.0 0.0 - 0.0 0.5 -
Depreciation &
Amortisation 3.8 3.7 2.5 16.4 16.3 0.2
PBT & Exceptional
Items 240.2 190.8 25.9 758.7 679.9 11.6
Less : Exceptional
Items 0.0 17.8 - (13.6) (128.2) (89.4)
Profit before tax 240.2 208.7 15.1 772.7 808.1 (4.4)
Provision for Taxation 79.0 65.5 20.6 260.7 238.1 9.5
Net Profit 161.2 143.2 12.6 511.7 570.0 (10.2)
EPS (Rs) 19.0 16.9 60.0 69.8
Source: Company, Angel Research

Key Highlights

Revenues up 18%, beat estimates: Glaxo reported Net Sales of Rs541.1cr
(Rs457.2cr), up 18.4% yoy and was ahead of our estimate of Rs514.2cr. Top-line
growth was driven by the Vaccine and Dermatology Segments. During the quarter,
the company launched the anti-fungal antibiotic, Mycamine and Dermatology
products from the Sitefel basket.

Exhibit 2: Sales Trend
550 512 541 35.0
457 457 444 30.0
450
25.0
350
20.0
(Rs cr)

(%)
250 15.0

10.0
150
5.0
50
0.0

-50 1QCY2009 2QCY2009 3QCY2009 4QCY2009 1QCY2010 -5.0

Sales Growth (YoY)


April 28, 2010 2


OPM expands on better Product mix: Glaxo reported OPM of 37.0%, which
expanded by 100bp on better Product mix in spite of Employee expenses increasing
by 27.3% to Rs55.3cr (Rs43.5cr) and Other expenses rising 21.4% to Rs82.5cr
(Rs67.9cr). The company reported Net Profit of Rs161.2cr (Rs143.2cr), up 12.6%
yoy on the back of lower total Other Income.

Exhibit 3: OPM Trend
40.0

36.9 37.0

35.0 36.0 35.6
(%)

31.2
30.0

25.0
1QCY2009 2QCY2009 3QCY2009 4QCY2009 1QCY2010


Outlook and Valuation

Glaxo is the third largest pharmaceutical player in the India market with a market
share of 5%. The company’s product portfolio includes both prescription medicines
and vaccines. Glaxo sells prescription medicines across therapeutic areas such as
anti-infectives, dermatology, gynaecology, diabetes, oncology, cardiovascular
disease and respiratory diseases. Majority proportion of the company’s Revenue
comes from the acute therapeutic portfolio. However, the company is now scouting
for opportunities in high-growth therapeutic areas like CVS, CNS, Diabetes and
Oncology. Further, with a strong parentage, Glaxo plans to increase its product
portfolio through patented launches and vaccines.

We expect Net Sales to post CAGR of 12.7% to Rs2,422cr and EPS to clock CAGR of
11.0% to Rs73.9 over CY2009-11E. At Rs1,899, the stock is trading at 29.1x and
25.7x CY2010E and CY2011E Earnings, respectively. Adjusting the expected cash
per share of Rs248 as on CY2011E, the company is trading at 28.0x CY2010E and
24.5x CY2011E Earnings. Given the rich valuations, we recommend a Reduce on
the stock, with a Target Price of Rs1,700, valuing the company at 23x (25%
premium to its 5-year historical average) CY2011E Earnings.

Exhibit 4: One-year forward PE Band
2,500

2,000

25x
1,500
20x
(Rs)

1,000 15x

10x
500

0
Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10
Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10
Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Source: C-line, Angel Research

April 28, 2010 3


Profit & Loss Statement (Consolidated) (Rs cr)
Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E
Gross sales 1,710 1,748 1,787 1,950 2,186 2,468
Less: Excise duty 128.0 139.9 93.6 42.6 41.2 46.4
Net Sales 1,582 1,608 1,693 1,908 2,145 2,422
Other operating income 12.8 4.2 2.9 2.8 4.6 4.7
Total operating income 1,595 1,612 1,696 1,910 2,149 2,427
% chg 4.9 1.1 5.2 12.6 12.5 12.9
Total Expenditure 1,101 1,093 1,098 1,234 1,399 1,571
Net Raw Materials 641.5 636.6 655.8 702.2 798.8 902.0
Other Mfg costs 67.3 71.9 96.6 109.3 76.0 85.8
Personnel 153.7 151.3 172.8 209.3 245.4 268.2
Other 238.9 232.8 172.9 212.8 278.8 314.8
EBITDA 480.6 515.6 595.4 674.0 745.9 851.0
% chg 8.5 7.3 15.5 13 11 14
(% of Net Sales) 30.4 32.1 35.2 35.3 34.8 35.1
Depreciation& Amortisation 20 21 16.3 16.4 17 18
EBIT 460.5 495.0 579.0 657.7 728.8 833.4
% chg 8.1 7.5 17.0 13.6 10.8 14.4
(% of Net Sales) 29.1 30.8 34.2 34.5 34.0 34.4
Interest & other Charges 0.6 0.6 0.5 0.4 - -
Other Income 94.0 134.0 119.6 101.1 91.4 97.4
(% of PBT)
Share in profit of Associates - - - - - -
Recurring PBT 566.7 632.5 701.0 761.2 824.8 935.5
% chg 235.0 11.6 10.8 8.6 8.4 13.4
Extraordinary Expense/(Inc.) (183.8) (137.9) (128.2) (7.4) - -
PBT (reported) 750.5 770.5 829.2 768.6 824.8 935.5
Tax 199.1 217.9 238.1 260.7 270.7 309.3
(% of PBT) 26.5 28.3 28.7 33.9 32.8 33.1
PAT (reported) 551.3 552.6 591.1 507.9 554.1 626.2
ADJ. PAT 367.6 414.6 462.9 500.5 554.1 626.2
% chg 35.6 12.8 11.6 8.1 10.7 13.0
(% of Net Sales) 34.9 34.4 34.9 26.6 25.8 25.9
Basic EPS (Rs) 65.1 65.2 69.8 60.0 65.4 73.9
Fully Diluted EPS (Rs) 65.1 65.2 69.8 60.0 65.4 73.9
% chg 10.1 0.2 7.0 (14.1) 9.1 13.0

April 28, 2010 4


Balance Sheet (Consolidated) (Rs cr)
SOURCES OF FUNDS
Equity Share Capital 84.7 84.7 84.7 84.7 84.7 84.7
Reserves& Surplus 1,120 1,296 1,491 1,701 1,944 2,219
Shareholders Funds 1,205 1,381 1,575 1,786 2,029 2,304
Total Loans 5.5 5.7 5.6 5.4 5.2 5.2
Deferred Tax Liability (24.8) (20.3) (29.8) (44.9) (21.6) (21.0)
Total Liabilities 1,186 1,366 1,551 1,747 2,013 2,288
APPLICATION OF FUNDS
Gross Block 297.8 310.9 326.3 333.3 363.3 393.3
Less: Acc. Depreciation 207.6 223.4 235.9 240.5 257.8 275.5
Net Block 90.2 87.5 90.4 92.8 105.5 117.8
Capital Work-in-Progress 8.7 5.4 10.0 21.4 21.4 21.4
Investments 1,137 1,346 730 148 148 148
Current Assets 518.2 566.5 1,451.7 2,182.6 2,440.9 2,748.4
Cash 35.8 155.0 956.7 1,734.0 1,866.0 2,099.3
Loans & Advances 175.9 162.6 204.1 137.6 210.2 237.3
Other 306.5 248.9 290.9 311.0 364.6 411.7
Current liabilities 568.2 639.6 730.2 698.7 703.6 748.1
Net Current Assets (50) (73) 721 1,484 1,737 2,000
Total Assets 1,186 1,366 1,551 1,747 2,013 2,288

Cash Flow Statement (Consolidated) (Rs cr)
Profit before tax and
exceptionals 566.3 627.5 701.0 761.2 824.8 935.5
Depreciation 20.1 20.5 16.3 16.4 17.1 17.6
(Inc)/Dec in Working Capital (40.3) 7.2 (32.5) 20.4 (121.2) (29.7)
Less: Other income 94.0 134.0 119.6 101.1 91.4 97.4
Direct taxes paid 230.5 252.0 246.4 185.4 247.4 359.5
Cash Flow from Operations 221.6 269.3 318.8 511.5 381.8 466.5
(Inc.)/Dec.in Fixed Assets 15.3 (14.9) (23.6) (20.9) (30.0) (30.0)
(Inc.)/Dec. in Investments (25.0) 30.8 - (580.2) - -
Other income 94.0 134.0 119.6 101.1 91.4 97.4
Cash Flow from Investing 84.3 149.8 96.0 (500.0) 61.4 67.4
Issue of Equity - - - - - -
Inc./(Dec.) in loans 0.7 (0.2) 0.1 0.2 0.3 -
Dividend Paid (Incl. Tax) (269.0) 297.0 (354.9) (394.3) (311.2) (300.9)
Others (49.3) (596.7) 741.5 1,159.9 - -
Cash Flow from Financing (317.3) (300.2) 387.3 65.0 (310.6) (300.6)
Inc./(Dec.) in Cash (11.8) 119.2 801.7 777.3 132.0 233.3
Opening Cash balances 47.6 35.8 155.0 956.7 1,734.0 1,866.0
Closing Cash balances 35.8 155.0 956.7 1,734.0 1,866.0 2,099.3

April 28, 2010 5


Key Ratios
Valuation Ratio (x)
P/E (on FDEPS) 29.2 29.1 27.2 31.7 29.1 25.7
P/CEPS 28.2 28.1 26.5 30.7 28.2 25.0
P/BV 13.4 11.7 10.2 9.0 7.9 7.0
Dividend yield (%) 1.6 1.9 2.1 1.6 1.7 1.9
EV/Sales 10.2 9.9 8.9 7.5 6.6 5.8
EV/EBITDA 33.4 30.9 25.4 21.3 19.1 16.5
EV / Total Assets 13.6 11.7 9.8 8.2 7.1 6.1
Per Share Data (Rs)
EPS (Basic) 65.1 65.2 69.8 60.0 65.4 73.9
EPS (fully diluted) 65.1 65.2 69.8 60.0 65.4 73.9
Cash EPS 67.5 67.7 71.7 61.9 67.4 76.0
DPS 31.0 36.0 40.0 30.0 31.4 35.5
Book Value 142.2 163.0 186.0 210.9 239.5 272.0
Returns (%)
RoCE (Pre-tax) 43.0 38.8 39.7 39.9 38.8 38.8
RoE 34.1 32.1 31.3 29.8 29.0 28.9
Turnover ratios (x)
Asset Turnover (Gross
Block) 5.4 5.3 5.3 5.8 6.2 6.4
Inventory / Sales (days) 54 52 48 47 46 45
Receivables (days) 15 11 10 11 12 14
Payables (days) 78 77 80 81 80 75
Working capital cycle (ex-
cash) (days) 104 101 98 90 87 92
Solvency ratios (x)
Net debt to equity (0.0) (0.1) (0.6) (1.0) (0.9) (0.9)
Net debt to EBITDA (0.1) (0.3) (1.6) (2.6) (2.5) (2.5)

April 28, 2010 6


Research Team Tel: 022- 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

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may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

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Disclosure of Interest Statement Glaxo
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

April 28, 2010 7

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