GSK Pharma gains depend on new launches, traction in base business

The stock of Glaxo SmithKline Pharmaceuticals or GSK Pharma has shed a fifth of its value over the last three months. The weakness in the stock is largely on account of a muted performance in the first quarter of 2025-26 (Q1FY26).

 

The Q1 was impacted by sluggish show of the base business and supply disruption, resulting in brokerages cutting their earnings estimates. While new launches, especially in the vaccine and specialty segments, and a recovery in the general medicines are key triggers, the stock may not see a recovery in the near term given the growth underperformance in the Indian pharma market in recent months.

 

Revenues for the company declined by 1.4 per cent year-on-year (Y-o-Y) and 17.4 per cent sequentially in Q1 to ₹805 crore. Sales trailed analyst estimates by about 8 per cent, and were impacted by a fire at a supplier site (contract manufacturing organisation, or CMO) and muted performance in key therapies of anti-infectives, pain, and dermatology.

 

Analysts led by Abdulkader Puranwala of ICICI Securities point out that weaker growth across topical corticosteroids and anti-infectives dragged growth in the general medicine segment. Volumes in this business declined by 1.7 per cent in Q1.

 

Key brands such as Eltroxin (hypothyroidism) and Calpol (analgesic/antipyretic) witnessed headwinds as the fire at the CMO (the company outsources 60 per cent of its procurement) disrupted supplies. However, a recovery coupled with a surge in volumes of key brands, price hikes, and new launches may aid 6.7 per cent growth over FY25-FY27 in GSK’s pharmaceutical segment, believes the brokerage. ICICI Securities has a “Reduce” rating on account of expensive valuations.

 

Growth in the quarter was led by the specialty segment, with the respiratory portfolio of Nucala and Trelegy continuing to garner market share. The vaccine segment growth is powered by the paediatric vaccine portfolio of Boostrix, Varilrix, and Havrix. It is registering sales of 10,000 monthly doses for adult vaccine Shingrix. 

 

For the vaccine space, the company expects high single- to low double-digit value growth on the back of stable growth (low to mid-single digit) in paediatric and scaleup in adult vaccination. Shingrix remains a long-term story, which will help improve overall mix and margins for the company, says Nirmal Bang Research.

 

Even as the top line was subdued, the company posted an expansion in gross margins by 50 basis points (bps) Y-o-Y to 64 per cent due to improvement in product mix. The operating profit saw a 9 per cent gain while margins were up 290 bps on better cost control. On a sequential basis, both operating profit and margins were down 24.6 per cent and 300 bps, respectively.

 

Motilal Oswal Research cut its estimates by 5 per cent for FY26 and 2 per cent for FY27, factoring in the adverse impact on supplies of certain drugs due to constraints at a CMO facility, and moderation of prospects in dermatology/respiratory therapies. The brokerage has a “Neutral” rating on the company.

 

The key trigger for the stock are new launches. The company launched its patented oncology brands Jemperli and Zejula last month, and its pipeline has innovative hepatitis-B and vaccine brands, which are expected to be launched in the next couple of years.

 

Nirmal Bang Research expects GSK Pharma to deliver steady revenue growth of 10 per cent over FY25-FY27, with net profit rising 12 per cent annually, mainly supported by volume-led growth in general medicines, scaleup in adult vaccination (Shingrix), and rampup in specialty launches. Given the long-term growth prospects, and potential margin expansion over the next three-five years, the stock offers a favourable entry point, says the brokerage, which has a “Buy” rating on it.