Friday, 30 November 2012

Incredible stocks - Glaxo Smithkline Consumer Healthcare

Branded consumer healthcare products are big hit with consumers always. With growing income and better health awareness, the demand for these products is going to increase. The main consumers are children and teenagers. One example is health drinks like Horlicks, Boost, Complan etc. which we all consume and which have become household names. The brand recall value for such products is very high and surely presents the investor with a good opportunity to explore this sector for good stock investments

Boost is the secret of energy for.............. well most of the kids we know! In this post we are going to study the company which makes and markets this and other healthdrink products, notable amongst which is Horlicks. Glaxo-Smithkline (GSK) consumer healthcare has had its presence in India from a very long time and its consumer healthcare products are only too well known.

In addition to consumer healthcare products Glaxo-Smithkline is also known for over-the-counter drugs like Crocin and other such medical products which include Eno, Iodex, Sensodyne etc. The company has also diversified into breakfast and lunch segments with offerings like biscuits, noodles, oats and other packaged food products.

Glaxo-Smithkline has over 60% market share in malted food drinks, and this is going to grow in future with growing demand for health drinks in both urban and rural markets. 50% of the topline for the company is due to Horlicks alone. GSK is the supplier of malted food division for the Govt’s Canteen Stores Department (CSD).

Currently the rural markets have a penetration level of only 11% compared to the 40% of urban markets in the Malted food drinks segment. As income levels grow and awareness grows amongst the general public, there will be a potential of growth in this segment.

The company is expanding its existing facilities in Haryana. This will certainly see more production leading to growth in its topline which will certainly lead to growth in other parameters also.

Let’s have a look at the parameters of the company for the past 5 yrs. The company follows the Calender Year.

2012 2011 2010 2009 2008 CAGR%
Sales (in Cr) 3187 2770 2373 1948 1592 18.95
Profit (in Cr) 436.77 355 299 232 188 23.46
OPM% 17.99 18.42 18.72 19.16 18
ROCE% 39.48 40.55 42 36.62 32.25
ROE% 32.1 32.21 32.58 25.64 26.15
Debt/Equity NA Nil Nil Nil Nil
Interest Coverage Ratio NA Nil Nil Nil Nil
Networth(in Cr) NA 1144 960 905 760

The CMP at the time of the post was Rs.3689.90

As we can see clearly, GSK is a zero debt company and has good ROE and ROCE figures. Such companies are investor's delight. It may well be called a great stock to invest.

Recently the company offered to raise its equity stake from the current 43% to 75% through open offer of shares from existing shareholders. It indicates the company’s confidence in its own business.

This news was recieved so positively by the market that in a matter of just 3 days the CMP of the stock jumped about Rs.600/- (approx). Parameters apart, this is one example of how news can affect a stock. In this instance the news was specifically about the company and the market reacted very positively and immediately. Sometimes, news about a sector as a whole or about the general economics of the country can also affect stocks.

So, read the parameters and also watch out for news. Only with the combination of both can an appropriate investment window be spotted. Investments at the right time in a good company can make our portfolio of good and great stock investments.