4QCY2012 Result Update | FMCG

February 20, 2013

GSK Consumer
Performance Highlights
Quarterly Result
(` cr) Revenue EBITDA OPM (%) PAT 4QCY12 709 51 7.2 70 4QCY11 602 62 10.2 59 % yoy 17.8 (17.3) (305)bp 17.9 3QCY12 828 140 17.0 129 % qoq (14.3) (63.7) (979)bp (45.8)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 16,107 (1,515) 0.3 3900/2179 7,352 10 19,643 5,943 GLSM.BO SKB@IN

`3,831 -

Source: Company, Angel Research

For 4QCY2012 GlaxoSmithkline Consumer Healthcare (GSK Consumer) posted a 17.9% yoy growth in net profit to `70cr, aided by a 161bp yoy improvement in gross margin and a 46.6% yoy increase in auxiliary income. Key highlights of the quarter: For 4QCY2012 GSK Consumer posted a 17.8% yoy growth in net sales, aided by an 8% volume growth. The top-line growth was reasonably strong despite lower offtake by the canteen stores department (CSD). The companys sales volume has been impacted by low CSD offtake since the beginning of CY2012. Better pricing resulted in a 161bp yoy increase in gross margin, despite the increase in cost of raw materials such as wheat, sugar etc. However, OPM was down by 305bp yoy to 7.2%, due to the steep 37.1% yoy increase in other expenses to `206cr. On a positive note, the company posted a 46.6% yoy increase in auxiliary income to `25cr. The effective tax rate too was down by 658bp yoy resulting in a 17.9% yoy increase in net profit to `70cr. Outlook and valuation: We expect the companys malted food drinks (MFD) division to continue to post double digit growth, aided by the companys efforts to strengthen its distribution network. The stock has run up steeply post the open offer announcement by the promoters. At the current market price, the stock is trading at 31.2x CY2013E EPS of `123. We continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex SKB 3m 7.2 26.2 1yr 7.4 45.5 43.2 16.1 15.7 25.1 3yr 21.3 174.5

Key Financials
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

CY2010 2,306 20.0 300 30.1 16.3 71.2 53.8 16.8 32.2 36.9 6.6 40.2

CY2011 2,686 16.5 362 20.8 15.8 86.0 44.5 14.1 33.8 37.0 5.6 35.4

CY2012E 3,079 14.7 437 20.7 15.1 103.9 36.9 11.8 34.9 35.4 4.8 31.5

CY2013E 3,617 17.5 517 18.4 16.3 123.0 31.2 9.7 34.3 36.4 4.1 25.1 V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

GSK Consumer | 4QCY2012 Result Update

Exhibit 1: Quarterly Performance

Y/E Dec (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation & Ammortisation Other Income PBT (excl. Extraordinary Items) Extraordinary Income/(Expense) PBT (incl. Extraordinary Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`)
Source: Company, Angel Research

4QCY12 709 241 34.0 78 11.1 133 18.7 206 29.1 658 51 7.2 0.1 8 61 103 103 14.6 34 32.7 70 9.8 4.2 16.6

4QCY11 602 214 35.6 62 10.2 114 19.0 150 25.0 540 62 10.2 0.9 12 49 97 97 16.2 38 39.3 59 9.8 4.2 14.1

% yoy 17.8 12.4 27.1 16.2 37.1 21.8 (17.3) (84.1) (34.6) 24.5 6.3 6.3 (11.5) 17.9

3QCY12 828 310 37.5 78 9.4 139 16.7 161 19.4 687 140 17.0 0.3 8 58 190 190 23.0 62 32.4 129 15.5 4.2

% qoq (14.3) (22.4) 1.2 (4.3) 28.5 (4.2) (63.7) (48.1) 2.7 4.8 (45.6) (45.6) (45.2) (45.8)

CY2012 3,079 1,152 37.4 301 9.8 496 16.1 665 21.6 2,614 465 15.1 2.4 36 222 649 649 21.1 212 32.7 437 14.2 4.2

CY2011 2,686 1,020 38.0 258 9.6 437 16.3 545 20.3 2,261 425 15.8 3.5 46 165 540 540 20.1 185 34.3 355 13.2 4.2 84

% chg 14.7 12.9 16.5 13.5 22.0 15.6 9.5 (30.3) (21.5) 34.7 20.1 20.1 14.5 23.0

17.9

30.6

(45.8)

104

23.0

Exhibit 2: Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 709 51 7.2 70

Angel Est 714 76 10.7 76

% chg (0.7) (33.3) (351) (9.0)

Healthy top-line growth despite de-growth in the CSD segment: GSK Consumer posted a healthy top-line growth of 17.8% yoy to `709cr (`602cr in 4QCY2011), led by an ~8% volume growth. The healthy performance was despite a de-growth in sales to the CSD segment.

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GSK Consumer | 4QCY2012 Result Update

Exhibit 3: Top-line growth at 17.8% yoy

900 800 700 600 (` cr) 500 400 300 508 710 653 720 602 813 730 828 100 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 709 200 20.0 (yoy %) (yoy %) 15.0 10.0 5.0 25.0

Top-line (LHS) Source: Company, Angel Research

yoy growth (RHS)

Exhibit 4: Operational performance

18 16 14 12 (%) 10 8 6 4 15 16 10 11 7 7 7 6 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 8 2 5.0 5.0 5.0 10 7.0 8 10.0 8 8 8 8.0 6.0 4.0 2.0 12.0

Volume Growth(LHS) Source: Company, Angel Research

Value Growth (RHS)

OPM down 305bp yoy to 7.2%: Better pricing resulted in a 161bp yoy improvement in gross margins, despite the increase in cost of raw materials such as wheat, sugar etc. However, the OPM was down by 305bp yoy to 7.2%, due to the steep 37.1% yoy increase in other expenses to `206cr. Earnings growth aided by higher other income: On a positive note, the company posted a 46.6% yoy increase in auxiliary income to `25cr. The effective tax rate too was down by 658bp yoy resulting in a 17.9% yoy increase in net profit to `70cr.

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GSK Consumer | 4QCY2012 Result Update

Exhibit 5: Gross margin and OPM

70.0 60.0 50.0 64.9 61.9 59.4 62.1 64.0 59.4 63.0 62.5 66.1

Exhibit 6: PAT grows by 17.9% yoy

150 130 110 (`cr) 90 70 50 111 103 132 107 129 53 82 59 70 30 70.0 60.0 50.0 (yoy %) Feb-13 40.0 30.0 20.0 10.0 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Nov-11 4Q12 May-12 Nov-12 Aug-12

40.0 (%) 30.0 20.0 10.0 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 11.5 20.5 16.4 10.2 19.9 17.0 7.2

15.1

15.2

10

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Investment rationale
Anchor brands to perform well coupled with new launches: We expect GSK Consumer to perform well with its anchor brands - Horlicks and Boost. Also, with the launch of innovative and premium products, the company is likely to maintain its margins and market share. In the MFD category, we expect Horlicks and Boost to maintain their double digit growth. Though the company has pricing power, innovative launches such as small pack sizes will help the company garner a market share in rural markets and penetrate new areas.

Outlook and valuation

We expect the companys MFD division to continue to post double digit growth, aided by the companys effort to strengthen its distribution network. The stock has run up steeply post the open offer announcement by the promoters. At the current market price, the stock is trading at 31.2x CY2013E EPS of `123. We continue to remain Neutral on the stock.

Exhibit 7: One-year forward P/E chart

50.0 45.0 40.0 35.0 30.0 (x) 25.0 20.0 15.0 10.0 5.0 Nov-08 Nov-09 Nov-10 Feb-08 Feb-09 Feb-10 Feb-11 May-08 May-09 May-10 May-11 Aug-08 Aug-09 Aug-10 Aug-11 Feb-12

Source: Company, Angel Research, Note: Blue line indicates 5-year average

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GSK Consumer | 4QCY2012 Result Update

Exhibit 8: Peer valuation

Company Asian Paints Britannia Colgate Dabur India Godrej Con GSK Con* HUL ITC Marico Nestle* TGBL Reco. Neutral Acc. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 43,591 5,959 18,352 22,973 25,443 16,110 103,104 235,881 14,399 44,286 9,050 CMP (`) 4,545 499 1,350 132 748 3,831 477 302 223 4,593 146 TP (`) 564 Upside (%) 13 P/E (x) FY13E 37.2 27.6 35.2 29.3 35.9 36.9 31.6 32.2 35.2 40.7 21.2 FY14E 30.9 23.0 30.0 24.1 27.6 31.2 28.1 27.2 28.5 32.2 17.9 EV/Sales (x) FY13E 3.8 1.0 5.7 3.8 4.2 4.7 3.9 7.8 3.1 5.1 1.2 FY14E 3.1 0.8 4.9 3.2 3.5 4.1 3.3 6.7 2.6 4.3 1.0 RoE (%) FY13E 37.7 38.7 104.6 44.5 23.2 34.9 84.5 35.1 26.3 71.2 8.9 FY14E 35.7 38.7 97.0 41.4 25.1 34.3 75.8 35.1 23.3 60.3 9.8 CAGR # Sales 17.6 13.9 15.4 16.6 26.3 16.1 15.5 17.4 16.1 16.0 10.2 PAT 19.4 17.8 17.1 21.6 29.9 20.7 19.3 18.7 25.7 16.1 18.8

Source: Company, Angel Research; Note: #Denotes CAGR for FY2012-14E;*December year ending

Company Background
GSK Consumer is one of the largest players in the health foods industry in India and a clear market leader in the hot malted beverages category. The company's flagship product - Horlicks is a highly popular brand with a rich heritage, ranking no. 1 in the malted beverages category with a ~50% market share. The company also sells other malted beverages brands, such as Boost, Maltova and Viva. The company is also present in the biscuits segment through its Horlicks biscuits range. In addition, the company promotes and distributes a number of OTC products from its global parent, which include prominent household names like Eno, Crocin and Iodex. GSK Consumer has a strong marketing and distribution network in India, comprising of over 1,800 wholesalers and 400,000 retail outlets.

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GSK Consumer | 4QCY2012 Result Update

Profit & Loss Statement

Y/E Dec (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Total Expenditure Cost of Materials Advertising Exp Personnel Others EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra. Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY08 1,700 159 1,542 1,542 20.6 1,304 586 194 172 352 238 5.7 15.4 42 196 7.9 12.7 5 95 33.4 286 16.6 1.63 284 96 33.5 188 188 190 16.8 12.3 45.2 45.2 16.8 CY09 2,025 104 1,922 1,922 24.6 1,611 714 302 201 394 311 30.8 16.2 42 269 37.3 14.0 4 89 25.2 354 23.9 (2.61) 356 124 35.0 233 233 230 21.2 12.0 54.7 54.7 21.2 CY10 2,431 125 2,306 2,306 20.0 1,818 865 371 230 352 489 57.3 21.2 40 449 67.1 19.5 3 0.0 446 26.1 (0.29) 447 152 34.1 294 294 294 27.7 12.7 71.2 71.2 30.2 CY11 2,832 147 2,686 2,686 16.5 2,261 1,023 437 258 542 425 (13.0) 15.8 46 379 (15.6) 14.1 3 165 30.5 540 21.1 6.65 534 178 33.0 355 355 362 23.1 13.5 86.0 86.0 20.8 CY12E 3,286 202 3,084 3,084 14.8 2,614 1,152 493 301 668 470 51.3 15.2 36 434 14.5 14.1 2 222 34.0 653 20.9 653 212 32.4 441 441 441 22.0 14.3 103.9 103.9 20.7 CY13E 3,854 237 3,617 3,617 17.3 3,027 1,356 579 351 742 590 25.6 16.3 56 534 41.0 14.8 4 247 31.8 2.00 778 19.0 778 260 33.5 517 517 517 42.9 14.3 123.0 123.0 18.4

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GSK Consumer | 4QCY2012 Result Update

Exhibit 9: Balance Sheet

Y/E Dec (Rs cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Long term Provisions Other long term liablities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
Source: Company, Angel Research

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E 42 719 761 7 42 863 905 (11) 42 918 960 (27) 42 1,102 1,144 (40) 51 10 767 473 329 144 16 66 853 471 62 320 312 541 767 894 492 364 128 38 66 1,173 820 56 297 511 662 894 933 533 397 136 108 66 1,423 976 84 363 800 623 933 1,165 570 436 134 149 66 50 1,642 1,080 93 469 878 765 1,165 42 1,319 1,361 (62) 77 11 1,388 599 472 127 197 66 45 2,057 1,464 111 482 1,105 952 1,388 42 1,613 1,655 (40) 77 11 1,703 965 528 437 125 66 45 1,977 1,313 93 571 947 1,030 1,703

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GSK Consumer | 4QCY2012 Result Update

Cash Flow Statement

Y/E Dec (` cr) Profit before tax Depreciation Change in Working Capital Interest/ Dividend(Net) Direct taxes paid Others Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Inc./ (Dec.) in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances

CY08 286 42 (58) (31) 96 (10) 133 29 298 269 31 (7) (24) 377 94 471

CY09 354 42 211 (20) 124 (5) 458 41 (41) 89 (20) (68) 349 471 820

CY10 452 40 169 (41) 152 4 472 111 (111) (0.00) 245 (41) (204) 156 820 976

CY11 540 46 (71) (67) 178 6 276 79 (79) 9.97 171 (67) (94) 104 976 1,080

CY12E 649 36 264 (70) 212 (55) 613 77 (77) 1.51 222 (70) (151) 385 1,080 1,464

CY13E 778 56 (225) (70) 260 15 294 293 (293) 221 (70) (152) (151) 1,464 1,313

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GSK Consumer | 4QCY2012 Result Update

Key Ratios
Y/E Dec Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) Net working capital (days) 3.3 66 10 59 17 4.3 51 6 71 (30) 3.9 49 8 74 (56) 4.7 50 13 89 (43) 4.3 49 10 98 (65) 3.8 49 9 71 (32) 27.3 45.7 27.0 32.3 94.2 27.9 36.9 1,418.7 32.2 37.0 33.8 35.4 34.9 36.4 443.1 34.3 45.2 45.2 55.1 15.0 180.9 54.7 54.7 65.3 18.0 215.2 71.2 71.2 80.7 50.0 228.3 86.0 86.0 95.4 35.0 272.1 103.9 103.9 112.4 45.0 323.6 123.0 123.0 136.3 45.0 393.5 84.8 69.5 21.2 0.4 10.1 65.8 20.4 70.0 58.6 17.8 0.5 8.0 49.2 17.1 53.8 47.4 16.8 1.3 6.6 40.2 16.2 44.5 40.2 14.1 0.9 5.6 35.4 13.5 36.9 34.1 11.8 1.2 4.8 31.5 11.2 31.2 28.1 9.7 1.2 4.1 25.1 9.1 CY08 CY09 CY10 CY11 CY12E CY13E

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GSK Consumer | 4QCY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GSK Consumer No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 20, 2013

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