The March quarter results of GlaxoSmithKline Pharmaceuticals Ltd (GSK) were higher than analyst’ estimates, similar to what was seen in the December quarter.
GSK’s sales rose by 19% to Rs547 crore over the year-ago period, ahead of the drug market growth of 14-15%. Its growth was mainly due to higher volumes and a richer product mix, with price playing a negligible role, according to the company. Sales of vaccines rose by around 48% during the quarter. The parent company’s hunger for growth in emerging markets has made GSK a more aggressive player.
The drug maker is driving growth through new offerings, with five new products slated for a 2010 launch, after having launched eight products between 2008 and 2009. It’s backing them up with a higher number of staff in the field. After hiring 200 people in 2009, it plans to add 250 more in 2010.
GSK’s ability to sustain this better-than-expected sales growth in the future depends on a few factors. Once new products acquire a certain sales level, growth rates could taper. A concerted sales push with the help of an expanded field force could make a difference. Its ability to launch new products in 2010 as per plan will also be a critical factor.
The company is, however, taking a conservative approach and believes that it could match the pharmaceutical market growth.
The effect of the product mix is clearly visible in its material costs, which have risen by just 11%, or about half of sales growth. That gave GSK enough cushion to bear the 27% growth in employee cost, a 19% increase in other expenses, where the key sub-heads are sales promotion, freight and manufacturing expenses.
Graphic: Yogesh Kumar / Mint
Operating profit margin rose by about 1 percentage point to 37.6%. The company is cautious on this front, too, anticipating higher hiring and promotions may lead to lower margins, and believes a 33-35% range is sustainable in the long run.
Though operating profits grew by 22%, growth in net profit before exceptional items was higher at 28%, primarily due to dividend income received from a subsidiary.
In 2010, GSK’s hiring and product promotion plans could cause some volatility in quarterly numbers. But in the longer run, it appears to have stepped up into a phase of higher growth.