GlaxoSmithKline Pharma

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GlaxoSmithKline Pharma: Hold

Product launches, sharper focus on pharmaceuticals and greater opportunities in clinical research lend strength to the company.



Mr Hasit Joshipura, MD

Kumar Shankar Roy

Investors can retain their holdings in GlaxoSmithKline Pharma (GSK Pharma), the listed subsidiary of global pharma major GlaxoSmithKline, despite the stock under-performing over the past year. A slew of product launches (both patented and in-licensed), sharper focus on pharmaceuticals (after having divested the animal healthcare and fine chemicals businesses) and opportunities for uptake of clinical research by the parent company indicate that prospects may change for the better.

At the current price of Rs 1,010, the stock discounts its FY-08 per share earnings by about 19 times. The valuation is not cheap, given GSK Pharma’s muted top line and profit growth over the past three years (compounded annual growth rate of 4 per cent in sales and 3 per cent in profits including sold-off businesses).

However, the valuation is justified by the expected ramp up in earnings from at least four exclusive launches (a cancer drug and vaccines), which will also help it foray into new niches. GSK Pharma holds a 4.8 per cent share in the domestic drug market, making it one of the top three manufacturers.

Any delay in product launches due to an uncertain patent regime and the looming threat of more drugs being brought under the Drug Price Control Order (GSK Pharma now derives around 30 per cent from price-controlled products) are risks to the company’s prospects.

Source:www.thehindubusinessline.com