GSK Pharma: In good health

In mid-February, when the Rs 1,660-crore GlaxoSmithKline Pharma announced its annual results, the stock was trading at a fairly expensive 19.5 times estimated 2009 earnings. Since then the stock has corrected some 8 per cent and on Monday, it fell 3.5 per cent to Rs 1,308. Glaxo’s top line is expected to grow by about 10 per cent in 2009, much like it did in 2008.

Moreover, the operating margins posted last year of around 35 per cent, the management believes, should sustain in the current year too. However, in 2008 the pre-exceptional net profit was up 13.8 per cent helped by higher interest income. Should the other income component not be as strong in the current year, the earnings growth might be just around 12-13 per cent. As such, even at current levels the stock appears to be a tad expensive even though the company is moving ahead with new launches.

Last year, Glaxo has found it difficult to keep pace with the growth in the home market –- last year the market grew by about 12 per cent. This year too sales may be just in double digits because its product portfolio is quite mature -- around 70 per cent of the firm’s revenues come from segments such as anti-infectives, dermatology, vitamins and respiration. It is now trying to focus on vaccines and oncology. Glaxo launched Tykerb (breast cancer) in 2008 and the firm will launch Cervarix (treatment for cervical cancer), which will be its second oncology product in 2009. Apart from that Glaxo has also tied up an in-licensing deal with Astellas for Mycamine (anti-fungal).