Glaxo: What the doctor ordered

Q4CY07 numbers are better than expected.

The Rs 1577 crore GlaxoSmithKline Pharma's results for the December 2007 quarter are not strictly comparable with those for Q4CY06, because the firm sold off its fine chemical business in September, 2007.

Adjusting for this, the company has turned in a better-than-expected top line growth of 14 per cent and better margins to boot.

In the September quarter the growth had been an unimpressive 5.2 per cent. Not surprisingly, the stock was up 2 per cent in a weak market though it has been an underperformer over the past year, much like its peers in the industry.

Sales were driven by dermatologicals and anti-infectives and to some extent by the recently launched Carzec, a medication for congestive cardiac failure.

A tight leash on costs "" both operational and employee costs "" helped India's biggest multinational pharma company expand operating profit margins (OPM) by 150 basis points to 27.5 per cent. Smaller MNCs like Aventis Pharma have seen their OPM fall by as much as 540 basis points 14.2 per cent in the December quarter.

Glaxo has ended CY07 with marginally higher revenues Rs 1557 crore. Operating margins were higher by 70 basis points at 31.7 per cent.

The net profit after exceptional items fell marginally to Rs 538 crore on account of a higher tax burden. At Rs 953, the stock trades at 18.5 times estimated CY08 earnings.

The management's commitment that all new products will be launched in the listed entity and the strong pipeline of new drugs for the next two years, make the stock a good long term play. Almost 50 per cent of the new launches will be high-margin vaccines and should help the company sustain margins.