GlaxoSmithKline Pharmaceuticals Ltd (GSK Pharma) is entering into a phase of consolidation, where it will use its expanded sales force and new product launches to drive growth. In the December quarter, it benefited from higher market growth.
Sales of pharmaceutical products rose by 18% year-on-year (y-o-y) during the quarter compared with a 12.5% rise during the full year 2011. The market growth during the year was in the range of 14-15%, which the company expects to sustain in 2012, too. Growth would have been higher, but for slower demand for anti-infective products during the year.
The vaccines business did well, with sales rising 58% in 2011. Speciality business reported 25% growth, dermatology rose by 14% and mass products by 7-8% (pulling down overall growth).
Most of its sales growth is led by volume and product mix, with prices contributing 1.5% to the 12.5% growth in 2011. High sales growth during the December quarter was accompanied by higher growth in material costs. Overall sales rose 15.4% y-o-y in the quarter, but material costs rose by 27% due to the rupee depreciation and price increases.
A decline in other expenditure and relatively lower increase in employee costs led to its operating profit margin increasing by 11 basis points to 31.5%. One basis point is one-hundredth of a percentage point.
Net profit (before exceptional items) rose by 20% to Rs 147.4 crore, higher than the 15.7% growth in its operating profit, chiefly due to higher other income.
GSK Pharma’s key growth drivers are new product launches and expanding sales reach. It has launched new products from its parent’s portfolio; two drugs and one vaccine were launched in 2011, and also branded generics to fill gaps in its product portfolio. In 2012, it will follow the same strategy, with a few branded generics being launched in the anti-infective, cardiovascular and metabolic categories.
An important change is that it does not expect any significant additions to its sales force this year; in 2011, it added about 700 people. Its focus will, thus, be on using its expanded manpower base to drive further sales growth, which should see salaries increase largely in line with wage inflation.
If the company can grow sales at or above market rates and keep material costs in check (an appreciating rupee should help), then 2012 should see its profit grow much better than it did in 2011. The parent’s focus is to exceed market growth in emerging markets in Asia-Pacific. India’s position in this market should see it get continued attention, which is good for GSK Pharma.
The risks are from fierce competition and fluctuations in market growth, which can upset projections. GSK Pharma’s share gained by about 9% in February, but after its results were announced on Thursday, it fell by 1.2%. The company trades at a price-earnings multiple of about 29 times its 2011 earnings per share, which indicates that high growth expectations are already factored in its price.
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