1QCY2013 Result Update | FMCG

May 11, 2013

GSK Consumer
Performance Highlights
Quarterly Result
(` cr) Revenue EBITDA OPM (%) PAT 1QCY13 940 171 18.2 156 1QCY12 813 162 19.9 132 % yoy 15.6 5.6 (171)bp 18.5 4QCY12 709 51 7.2 70 % qoq 32.5 235.1 1,098bp 124.6

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 17,001 (1,515) 0.2 4334/2179 5,818 10 20,122 6,107 GLSM.BO SKB@IN

`4,043 -

Source: Company, Angel Research

For 1QCY2013 GlaxoSmithkline Consumer Healthcare (GSK Consumer) posted a 18.5% yoy growth in net profit to `156cr, aided by a 15.6% yoy growth in topline and a 50% yoy increase in auxiliary income. Key highlights of the quarter: For 1QCY2013 GSK Consumer posted a 15.6% yoy growth in net sales, aided by 8% volume growth. Better realization coupled with lower raw material costs resulted in a 276bp yoy increase in gross margin. Gross margins increased despite higher yoy prices of key raw materials such as wheat, sugar due to the strategic sourcing and superior cost reduction initiatives. However, OPM was down by 171bp yoy to 18.2%, due to the steep 46.0% yoy increase in advertising expenses to `159cr. The effective tax rate too was down by 144bp yoy aiding a 18.5% yoy increase in net profit to `156cr. Outlook and valuation: We expect the GSK Consumers malted food drinks (MFD) division to continue to post double digit growth, aided by its efforts to strengthen its distribution network. The companys top-line and bottom-line are expected to grow at a CAGR of 17.6% and 19.6% respectively over CY2012-14E. The stock has appreciated considerably post the announcement of open offer by promoters. At the current market price, the stock is trading at 27.2x CY2014E EPS of `149. We continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 72.5 0.7 11.4 15.5

Abs. (%) Sensex SKB

3m 3.4 7.4

1yr 23.5 45.8

3yr 17.4 152.6

Key Financials
Y/E Dec. (` 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

CY2011

CY2012

CY2013E

CY2014E

2,686 16.5 362 20.8 15.8 86 47.0 14.9 33.8 37.0 5.9 37.5

3,079 14.7 437 20.7 15.1 104 38.9 12.5 34.9 35.4 5.0 33.4

3,617 17.5 514 17.7 16.1 122 33.1 10.3 34.1 36.5 4.2 26.4

4,259 17.7 625 21.6 16.4 149 27.2 8.3 33.7 35.5 3.5 21.4 V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

GSK Consumer | 1QCY2013 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

1QCY13 940 356 37.9 89 9.5 159 16.9 165 17.5 769 171 18.2 0.1 11 68 228 228 24.2 71 31.4 156 16.6 4.2 37.2

1QCY12 813 330 40.6 66 8.1 109 13.4 146 17.9 651 162 19.9 1.2 12 48 196 196 24.2 64 32.8 132 16.2 4.2 31.3

% yoy 15.6 7.7 34.7 46.0 13.1 18.1 5.6 (88.1) (10.2) 42.0 16.0 16.0 10.9 18.5

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

% qoq 32.5 47.8 13.4 20.1 (20.0) 16.9 235.1 35.3 12.2 120.3 120.3 111.4 124.6

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

18.6

16.6

124.6

104

23.1

Exhibit 2: Actual vs Angel estimates

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

Actual 940 171 18.2 156

Angel Est 883 168 19.0 142

% chg 6.5 1.8 (83) 10.5

Healthy top-line growth of 15.6% yoy

GSK Consumer posted a healthy top-line growth of 15.6% yoy to `940cr (`813cr in 1QCY2012), led by a ~8% volume growth. Horlicks posted a growth of 18% yoy with volume and value growth of ~7% and ~10% respectively. Boost posted a growth of 25% yoy with volume and value growth of ~10% and ~14% respectively. Packaged foods division grew by 24% yoy.

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GSK Consumer | 1QCY2013 Result Update

Exhibit 3: Top-line growth at 15.6% yoy

1,000 900 800 700 500 400 300
710 653 720 602 813 730 828 709 (yoy %) (yoy %)

25.0 20.0 15.0 10.0 5.0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

600
(` cr)

100 -

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

yoy growth (RHS)

Exhibit 4: Operational performance

18 16 14 12
(%)

940

200

12.0 10.0 8.0 8.0 8.0 8.0 10.0 10.0 8.0 8.0 5.0 5.0 6.0 4.0 2.0
10 11 7 7 6 8 8

10 8 6 4

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

16

Volume Growth(LHS) Source: Company, Angel Research

Value Growth (RHS)

OPM down 171bp yoy to 18.2%

Despite higher yoy prices of key raw materials such as wheat, sugar, the companys raw material costs as a % of sales declined by 280bp yoy due to the strategic sourcing and superior cost reduction initiatives. However, OPM was down by 171bp yoy to 18.2%, due to the steep 46.0% yoy increase in advertising expenses to `159cr.

Earnings growth aided by higher other income

The effective tax rate too was down by 144bp yoy aiding a 18.5% yoy increase in net profit to `156cr.

May 11, 2013

GSK Consumer | 1QCY2013 Result Update

Exhibit 5: Gross margin and OPM

70.0 60.0 50.0
(%)

Exhibit 6: PAT grows by 18.5% yoy

63.0 62.5 66.1 62.1 170 150 130 110
(` cr)

61.9

59.4

62.1

64.0

59.4

35.0 30.0 25.0

(yoy %)

40.0 30.0 20.0 10.0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

20.0 15.0 10.0

111 103 132 107 129 156 1Q13 82 59 70

90 70 50 30 10
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

20.5 15.1

16.4 10.2

19.9

15.2

17.0 7.2

18.2

5.0 -

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 malted food drinks (MFD) division to continue to post double digit growth, aided by its efforts to strengthen its distribution network. At the current market price, the stock is trading at 27.2x CY2014E EPS of `149. 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 25.0 20.0 15.0 10.0 5.0 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Oct-10 Mar-11 Aug-11 Jan-12 Nov-12 Apr-13 Jun-10 Jun-12

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

(x)

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GSK Consumer | 1QCY2013 Result Update

Exhibit 8: Peer valuation

Company Asian Paints Britannia Colgate Dabur India Godrej Con GSK Con* HUL ITC Marico Nestle* TGBL Reco. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 45,214 6,839 20,965 28,255 28,747 17,001 126,723 277,319 13,781 47,330 9,124 CMP (`) 4,714 573 1,542 162 845 4,043 586 355 214 4,909 148 TP (`) Upside (%) P/E (x) FY14E 32.8 28.3 34.5 30.2 33.6 33.1 34.3 32.0 27.0 37.3 18.7 FY15E 27.7 22.8 29.7 25.8 28.5 27.2 31.9 27.3 21.8 30.7 17.0 EV/Sales (x) FY14E 3.3 1.0 5.6 3.9 3.8 4.2 4.2 7.9 2.5 4.7 1.0 FY15E 2.7 0.8 4.8 3.2 3.1 3.3 3.6 6.4 2.0 4.0 0.5 RoE (%) FY14E 35.0 37.4 98.3 41.5 24.8 34.1 113.4 35.5 22.8 58.8 9.5 FY15E 32.7 37.3 88.0 40.1 24.2 33.7 87.0 34.1 22.9 69.5 9.8 CAGR Sales 18.8 15.5 15.1 16.5 18.8 17.6 14.7 15.3 14.8 16.7 10.0
#

PAT 18.0 22.0 17.4 19.5 18.9 19.6 11.7 16.6 23.3 18.4 13.0

Source: Company, Angel Research; Note: #Denotes CAGR for FY2013-15E;*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.

May 11, 2013

GSK Consumer | 1QCY2013 Result Update

Profit & Loss Statement

Y/E Dec (` cr) 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 CY09 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 2,306 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 2,686 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 CY12 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 3,617 17.3 3,036 1,356 588 351 742 581 23.7 16.1 46 535 41.3 14.8 4 247 31.8 2.00 779 19.2 779 265 34.0 514 514 514 42.0 14.2 122.2 122.2 17.7 CY14E 4,259 17.8 3,559 1,555 696 426 882 700 20.5 16.4 52 649 21.2 15.2 4 302 31.9 3.00 947 21.6 947 322 34.0 625 625 625 21.6 14.7 148.7 148.7 72.8

May 11, 2013

GSK Consumer | 1QCY2013 Result Update

Balance Sheet
Y/E Dec (` 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 492 364 128 38 66 1,173 820 56 297 511 662 894 533 397 136 108 66 1,423 976 84 363 800 623 933 570 370 201 149 50 1,642 1,080 93 469 878 765 1,165 590 396 194 197 45 2,057 1,464 111 482 1,105 952 1,388 790 442 348 97 45 2,350 1,676 102 571 1,139 1,210 1,700 890 493 396 97 45 2,810 2,029 108 673 1,321 1,489 2,027 894 933 42 863 905 (11) 42 918 960 (27) 42 1,102 1,144 (40) 51 10 1,165 42 1,319 1,361 (62) 77 11 1,388 42 1,610 1,652 (40) 77 11 1,700 42 2,013 2,056 (40) 11 2,027 CY09 CY10 CY11 CY12 CY13E CY14E

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GSK Consumer | 1QCY2013 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

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 (200) (67) 178 135 276 79 (79) 9.97 171 (67) (94) 104 976 1,080

CY12 649 36 187 (70) 212 13 603 68 (68) 1.51 222 (70) (151) 385 1,080 1,464

CY13E 779 46 (26) (70) 265 0 464 100 (100) 221 (70) (152) 212 1,464 1,676

CY14E 947 52 (2) (94) 322 0 581 100 (100) 221 (94) (127) 353 1,676 2,029

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GSK Consumer | 1QCY2013 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) 4.3 51 6 71 (30) 3.9 49 8 74 (56) 4.7 50 13 89 (43) 5.2 49 10 98 (65) 3.8 49 9 91 (50) 3.8 49 9 86 (43) 32.3 94.2 27.9 36.9 1,418.7 32.2 37.0 33.8 35.4 34.9 36.5 34.1 35.5 33.7 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 45.0 323.6 122.2 122.2 133.1 45.0 392.8 148.7 148.7 160.9 45.0 488.8 73.9 61.9 18.8 0.4 8.4 52.1 18.1 56.8 50.1 17.7 1.2 6.9 42.5 17.2 47.0 42.4 14.9 0.9 5.9 37.5 14.3 38.9 36.0 12.5 1.1 5.0 33.4 11.9 33.1 30.4 10.3 1.1 4.2 26.4 9.4 27.2 25.1 8.3 1.1 3.5 21.4 7.4 CY09 CY10 CY11 CY12 CY13E CY14E

May 11, 2013

GSK Consumer | 1QCY2013 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%)

May 11, 2013

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