Glaxo’s 4QCY2008 results were ahead of our expectations. For the quarter, the company posted net sales of Rs368.5 crore registering a y-o-y growth of 8.6%.
With this, for CY2008 on a comparable basis (excluding sale of fine chemical business on 30 September 2007), the company clocked net sales of Rs1,660.4 crore, a y-o-y growth of 10.1%.
During CY2008, the company entered the oncology segment with launch of its flagship-patented product Tykerb. In Vaccines, the company launched Rotarix.
The company also entered into two in-licensing deals one with Daiichi Sankyo, which culminated in the launch of Benitec (Olmersartan), and the other with Astellas for Michaungin (Critical Care), which is likely to be launched in CY2009.
For 4QCY2008, operating margins contracted by 46bp to 28.4% on the back of higher employee costs, which negated the expansion of GPM. During the quarter, employee costs grew 27.8% y-o-y to Rs42.5 crore on the back of increase in field force and salary increments.
Outlook and valuation
For CY2009, the company has guided for topline growth of 10% y-o-y and OPM of 35% driven by its increasing penetration in rural areas, new launches in growing Therapy segments and cost control initiatives.
The company plans to launch Eltrombopag (Thrombocytopenia), Cervarix (Vaccine), Infanrix Hexa (Vaccine) in the Indian market.
In the last one year, the stock has been an outperformer in the pharma sector on the back of its strong parentage, launch of patented products, healthy balance Sheet (cash of Rs1,550 crore) and strong dividend yield.
For CY2009, we have revised our sales and earnings estimates upwards by 1-7% taking into account the strong performance of CY2008 and healthy CY2009 guidance.
However, we have reduced our multiple to 18x (from 21x) to bring it in line with peers. On the valuation front, at current levels, the stock is trading at 21.5x CY2008 and 19.0x CY2009E Earnings.
Overall, given the sharp run up in the stock price in the last one year and with most positives priced in, we remain NEUTRAL on the stock.