GSK Consumer has rosy prospects for demand as it expects 6-9% volume growth in CY09. The slow-down has not had a major impact on it.
Despite a 5.5% price hike, volume growth in January ’09 was strong. The 4% excise duty cut has also helped improve realizations.
Prices of some of the major raw materials have started correcting. Reduced prices of packaging material and wheat are expected to boost margins. Higher milk prices, however, continue to put the squeeze on margins.
With the start of the harvest season in 2QCY09, management expects prices of barley to slide in the coming quarters.
The company has launched two new products in the past two months – Actigrow, a baby food, and Cereal Bar under the Horlicks brand. It is also aiming to soon launch a new energy drink under the Boost brand.
The company continues to launch new products and variants under the Horlicks, Boost and Glaxo brands. The sub-segmenting strategy and launch of niche products would keep up the growth tempo. Lower raw material costs would help improve margins.
We maintain a BUY on the stock for a target of Rs850 based on a target PE of 16x CY09e earnings. The dividend yield of 2.9% and cash per share of Rs125 strongly support this.