Valuations may temper gains for GlaxoSmithKline Pharma despite strong Q1

The brokerage has estimated a 9 per cent earnings growth over FY24-26 for GSK Pharma

The stock of pharma major GlaxoSmithKline Pharmaceuticals (GSK Pharma) was up about 5.7 per cent to Rs 3,059, taking the gains since its results earlier this month to 11 per cent. It has been a major outperformer since the start of April with gains of 57 per cent as compared to peer index BSE Healthcare (20 per cent gains) and the 10 per cent for the benchmark Sensex.

The recent gains were on account of a better-than-expected performance in the June quarter. The Indian subsidiary of the tenth largest global pharma company posted a 7 per cent uptick in revenues to Rs 815 crore. This was led by market share gains for key brands such as Calpol (paracetamol) and antibiotics Augmentin and T-Bact. The company highlighted that the respiratory portfolio comprising Nucala and Trelegy delivered a growth of 57 per cent for the quarter. It hiked the price of its portfolio not falling under the National List of Essential Medicines (NLEM) list by 5 per cent.

While the pharma segment which accounts for 79 per cent of revenues grew by 10 per cent, the vaccine segment (fifth of sales) rose by 8 per cent led by Havrix (Hepatitis A) and Boostrix (DPT). Within the vaccines segment, pediatrics vaccines grew by double digits (15 per cent) in 1Q.

 

Gross profitability was higher by 260 basis points over the year-ago quarter at 63.8 per cent due to falling raw material costs and change in product mix. Raw material costs as a percentage of sales at 36.2 per cent were at a multi-quarter low. 

Operating profit margins expanded by a sharper 940 basis points at 28.3 per cent, fuelled by higher gross margins, as well as lower employee costs and other expenses. The latter two were down 310 basis points to 370 basis points as a percentage of sales.

About 450 medical representatives had opted for VRS in December last year and the benefit of the same is controlling overhead costs which are down 10 per cent Y-o-Y. Operating profit was up 60 per cent to Rs 230 crore. The company is looking at maintaining its growth momentum and operating profit margins in the 28-29 per cent band for FY25. In addition to the base business, the Street will also keep an eye out for the timelines of the launch of oncology brands Zejula and Jemperli in FY25.

Motilal Oswal Research has raised its estimates by 2-3 per cent for FY25/26 to factor in sustained benefits of lower raw material costs, improved scale-up in brands like Nucala, and Treligy and strong volume off-take of antibiotic Ceftum.

Say analysts led by Tushar Manudhane of Motilal Oswal Research, “Despite an increase in the share of the portfolio under NLEM, GSK Pharma has shown healthy growth in respiratory brands, legacy brands (Augmentin, T-Bact, Calpol), as well as the vaccines segment.” 

The brokerage has estimated a 9 per cent earnings growth over FY24-26.  It, however, has reiterated a ‘neutral’ rating (with a target price of Rs 2,620) as the current valuation adequately factors in the upside in the earnings. 

ICICI Securities also has raised its FY25 and FY26 earnings per share by 8-11 per cent to factor in better margin performance. It, however, has maintained a ‘hold’ rating with a higher target price of Rs 2,640, valuing it at 45 times FY26 earnings.