Stock Market Result Update on GlaxoSmithKline Pharma for 3QCY2011

Stock Market Result Update on GlaxoSmithKline Pharma for 3QCY2011 with a Neutral recommendation.

GlaxoSmithKline Pharma (Glaxo) reported its 3QCY2011 results, which were below our estimates on the top-line and PAT fronts. The company’s OPM for the quarter came in at 29.0%, lower than our estimate. We continue to maintain our Neutral view on the stock.

Operating performance below estimates: For 3QCY2011, Glaxo reported 4.4% yoy growth in its net sales to `608cr, lower than our estimate of `643cr. The company’s gross margin came in at 60.0%, lower than our expectation of 63.2%. This led to OPM of 29.0%, below our estimate of 32.4%, for 3QCY2011. During the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr, below our expectation of `162cr, due to lower-than-expected OPM.

Outlook and valuation: We expect Glaxo’s 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 27.5x and 22.8x CY2011E and CY2012E earnings, respectively. We continue to maintain our estimates and, hence, remain Neutral on the stock.