Centrum calls a ‘Buy’ on GSK Consumer
CMP: Rs. 2716 Target Rs. 3055
GSK-CH posted Q2CY12 results broadly in-line with expectations with topline growth at 12.5% YoY on the back of 10% decline in exports and flat CSD sales. Volume growth at the company level was at 3.2% while domestic volume growth was healthy at 7.7% led by Boost. Gross margin expanded by 439bps which helped in boosting operating profit by 17%. PAT was up by 29%YoY. Maintain BUY.
Q1FY13 results broadly in-line: Sales for the company was in-line with expectation with 12.5% revenue growth at Rs7484mn led by 3.2% volume growth and 9% price growth. Exports declined by 10% on the back of higher base of Q2CY11 where it grew by 58%. Operating profit was up by 17.1% at Rs1394mn on the back of gross margin expansion. Depreciation was low as one of the plants got fully depreciated during the quarter. PAT was up by 29.3% and 4.5% above our estimates at Rs1066mn.
Margin expansion: Operating margin for the company expanded by 71bps on the back of 439bps gross margin expansion. Gross margins expanded on the back of lower exports, flat CSD sales, marginal commodity inflation along with cost optimization. RM cost inflation was 6.5% during the quarter with milk power increasing by 10% and malted barley by 8.5%. Though wheat was flat, sugar was up by 4%. We believe these margins are not sustainable in the long run. A&P spend was high on the back of increase in investments for non-MFD products. Employee cost was up by 16% following 11% increment and head count addition.
Non MFD business gaining traction: Biscuits business grew by 27% during the quarter while Horlicks Oats has been able to garner 11.5% market share in south India and currently is the number 3 player in the market. In noodles, it is focusing on the multigrain category which has higher gross margins and did a turnover of Rs50mn in Q2CY12. In the glucose category the company did zero turnover during the quarter against Rs50mn in Q2CY11. Business auxiliary income grew by 40% to ~Rs250mn driven by GSK Asia products such as Eno, Crocin, Iodex and Sensodyne.
Estimates increased; Maintain BUY: We have increased our CY12/CY13 estimates by 5.5% and 3.1% respectively on the back of increase in auxiliary income and gross margins expansion. The stock is currently trading at 25.8x and 21.9x CY12E and CY13E respectively. We continue to value the stock at 25x CY14E with our target price of Rs 3055 and maintain BUY rating on the stock.
K R Choksey calls a ‘Buy’ on Solar Ind.
CMP: Rs. 930 Target Rs. 1043
Solar Industries India Ltd. (Solar) reported strong set of numbers in Q1FY13, which was in-line with our expectations. Top-line grew by 19% yo-y & 12% sequentially, reflecting robust performance of explosive segment. EBIDTA also increased in-line with revenue growth by 16% y-o-y and 13% on q-o-q, while net profit spurred by 24% y-o-y during the quarter.
Q1FY13 Result: Explosive performance continues…: Revenue was primarily driven by strong performance of Explosives business to Rs261cr, partially offset by decline in revenues from trading business to Rs27cr. EBITDA increased 32% y-o-y and 4% sequentially to Rs52cr, in-line with our estimate of Rs50cr, mainly due to lower raw material cost and other expenses, led the total operating expenses, as a percentage of revenues at 82% v/s 83.9 in previous year. Consequently, EBITDA margins improved by 180bps y-o-y to 18% during the quarter. The company recorded adjusted net profit of Rs31cr, which was in-line with our estimate of Rs 30cr while net profit margins improved by 40bps y-o-y on the back of lower effective tax rate, partly offset by higher finance charges.
Significant footprint in Indian Explosive industry: Well poised for growth Indian civil explosive industry market is around Rs 2750cr, growing at a 6-7% every year. The downstream user industry such as steel, coal, cement and infrastructure impacted significantly, due to delay in execution process, slowdown in spending due to global meltdown coupled with environment clearance issues in recent past, which generally drives the demand of explosive products. However, after facing such macroeconomic headwinds, the kind of thrust that government is showing in taking aggressive steps to award pending projects, infrastructure spending to ramp up industrial activities coupled with recent announcement of lifting ban on iron ore mines in Karnataka, we believe that it is likely to generate significant demand of explosive products at double pace.
View & Outlook: Exploring the untapped Indian defence sector by setting up production facility to give more synergy to business. In addition, ongoing expansion plans in international market is likely to benefit company to further improve the performance. Moreover, we believe investments in 2 coal block can be a game changer once all approvals are in place. Hence, we recommend “ACCUMULATE” the stock with a target price of Rs 1043/share, a potential upside of 11%.