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Please refer to important disclosures at the end of this report 1

Y/E Dec (` cr) 3QCY2011 2QCY2011 % chg (qoq) 3QCY2010 % chg (yoy)Net sales 627 560 12.0 582 7.8Other income 42 42 (0.0) 33 28.4

Gross profit 396 354 11.9 367 8.1

Operating profit 203 186 9.2 209 (2.8)

Reported net profit 162.1 150.4 7.8 158 2.5Source: Company, Angel Research

GlaxoSmithKline Pharma (Glaxo) reported its 3QCY2011 results, which were

below our estimates on the top-line and PAT fronts. The companys OPM for the

quarter came in at 29.0%, lower than our estimate. We continue to maintain ourNeutral view on the stock.Operating performance below estimates: For 3QCY2011, Glaxo reported 4.4%yoy growth in its net sales to `608cr, lower than our estimate of `643cr. The

companys gross margin came in at 60.0%, lower than our expectation of 63.2%.

This led to OPM of 29.0%, below our estimate of 32.4%, for 3QCY2011. During

the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr, below our

expectation of`162cr, due to lower-than-expected OPM.

Outlook and valuation: We expect Glaxos net sales to post a 13.9% CAGR to`2,788cr and EPS to register a 14.6% CAGR to `86.9 over CY201012E.

At current levels, the stock is trading 27.5x and 22.8x CY2011E and CY2012E

earnings, respectively. We continue to maintain our estimates and, hence, remainNeutral on the stock.Key financials (Consolidated)

Y /E Dec. (` cr) CY2009 CY2010 CY2011E CY2012ENet sales 1,908 2,151 2,447 2,788% chg 12.7 12.8 13.8 14.0

Net profit 508 561 443 737% chg (14.1) 10.4 (21.0) 66.4

EPS (`) 60.0 66.2 72.0 86.9EBITDA (%) 35.3 35.3 35.5 35.5

P/E (x) 33.1 29.9 27.5 22.8

RoE (%) 29.8 30.9 21.1 30.7

RoCE (%) 39.9 40.6 41.5 41.0

P/BV (x) 9.4 8.6 7.5 6.6

EV/Sales (x) 7.9 6.9 6.0 5.2

EV/EBITDA (x) 22.3 19.5 17.0 14.5

Source: Company, Angel Research

NEUTRALCMP `1,982

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 50.7

MF / Banks / Indian Fls 17.6

FII / NRIs / OCBs 17.4

Indian Public / Others 14.3

Abs. (%) 3m 1yr 3yr

Sensex 0.3 (15.6) 78.7

Glaxo (7.2) (12.5) 85.2

16,776

10

16,785

0.2

2,475/1,905

4,183

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

5,030

GLAX.BO

GLXO@IN

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Sarabjit Kour Nangra+91 22 39357800 Ext: [email protected]

GlaxoSmithKline PharmaPerformance Highlights

3QCY2011 Result Update | Pharmaceutical

November 16, 2011

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Glaxo | 3QCY2011 Result Update

November 16, 2011 2

Exhibit 1:3QCY2011 Standalone performance

Y/E Dec (` cr) 3QCY2011 2QCY2011 % chg (qoq) 3QCY2010 % chg (yoy) 9MCY2011 9MCY2010 % chgNet sales 608 560 8.4 582 4.4 1,771 1,621 9.2Other income 44 42 4.7 33 34.6 144 106 35.6Total income 652 602 8.2 615 6.0 1,915 1,727 10.9Gross profit 364.8 354 3.0 367 (0.5) 1,091 1,029

Gross margin 60.0 63.2 63.0 61.6 63.5Operating profit 176 186 (5.3) 209 (15.7) 573 590 (3.0)

Operating margin (%) 29.0 33.2 35.9 32.3 36.4Interest - - - - - - - -

Depreciation & amortisation 5 5 (0.6) 4 19.5 14 12 19.7

PBT & Exceptional Items 215 223 (3.5) 237 (9.3) 703 685 2.6

Less : Exceptional Items - - - - - (190) (11)

Profit before tax 215 223 (3.5) 237 (9.3) 513 674 (23.9)Provision for taxation 69 73 (4.6) 79 (12.6) 218 227 (3.9)

Profit before exceptional items 146 150 (2.9) 158 (7.7) 294 446 (34.1)Net profit after exceptional items 146 150 (2.9) 158 (7.7) 484 446 8.4EPS (`) 17.2 17.4 18.7 57.1 52.7


Exhibit 2:3QCY2011 Actual vs. Angel estimates

(` cr) Actual Estimates Variation (%)Net sales 608 643 (5.6)

Other income 44.1 42.1 4.8

Operating profit 176.0 203 (13.3)Tax 69.2 78.0 (11.3)

Adj. net profit 146.0 162.1 (9.9)


Revenue grew by 4.4%, below our estimates

For 3QCY2011, Glaxo reported 4.4% yoy growth in its net sales to`608cr, lower

than our estimate of `643cr. Sales of the companys core pharmaceuticals

business grew by 6.5% in 3QCY2011.

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November 16, 2011 3

Exhibit 3:Sales trend

498

582

491

603560

608

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0

100

200

300

400

500

600

700

2QCY20103QCY20104QCY20101QCY20112QCY20113QCY2011

Sales Growth (YoY)

%


OPM dips by 680bp

For 3QCY2011, the companys gross margin came in at 60.0%. Consequently,

the company reported a dip of 689bp yoy in OPM to 29.0%, below our estimate of

32.4%. During the quarter, employee and other expenses increased by 15.5% yoy

to`66.1cr and 21.8% yoy to`122.7cr, respectively.

Exhibit 4:OPM trend

36.5 35.9

30.0

35.0

33.2

29.0

25.0

30.0

35.0

40.0

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11


Net profit in below estimates

During the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr,

below our expectation of`162cr. The decline in the companys net profit can be

attributed to lower-than-expected OPM during the quarter.

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November 16, 2011 4

Exhibit 5:Adjusted net profit trend

140

158

122

186

150 146

0

50

100

150

200

2QCY20103QCY20104QCY20101QCY2011 2QCY20113QCY2011


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November 16, 2011 5

Recommendation rationale

Renewed focus on the Indian market: Glaxo is among the top five players in theIndian market, having a market share of ~5%. Post the IPR regime, the company

has renewed its focus on the domestic market with the launch of five patented

products (mainly Tykerb and Rotarix) in the last two years. In CY2011, the

company plans to launch 46 branded generic products, two oncology products

and Synflorix vaccine. During 1QCY2011, the company launched two new

products namely the branded generic Calpol-T in the fast growing pain segment

and Ansolar (Sunscreen gel), which is a product from the Stiefel dermatology

range. The company has also received marketing approvals for two innovative

products namely Votrient for renal carcinoma and Revolade for platelet

depletion.

New product launches since CY2007 accounted for 26% yoy top-line growth

registered by the company in CY2010. Further, in-line with market dynamics,

Glaxo has launched patented products at discounts in India compared to other

markets. During 1QCY2011, the company added 550 MRs, taking its total

strength to 3,450. For CY2011, the company expects total pharma sales to

increase by 14.5% yoy, with operating margin at 3335%.

Outlook and valuation:

Glaxo has a strong balance sheet with cash of `2,000cr (~10% of market cap),

which could be used for future acquisitions or higher dividend payouts. We expect

Glaxos net sales to post a 13.9% CAGR to `2,788cr and EPS to register a 14.6%CAGR to`86.9 over CY201012E. At current levels, the stock is trading 27.5x and

22.8x CY2011E and CY2012E earnings, respectively. We continue to maintain ourestimates and, hence, remain Neutral on the stock.Exhibit 6:Key assumptions

CY2011E CY2012EDomestic sales growth (%) 14.5 14.3

Export sales growth (%) 20.0 18.0

Growth in employee expenses (%) 24.1 14.9

Operating margin (%) 35.5 35.5Capex (`cr) 20.0 20.0


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November 16, 2011 6

Exhibit 7:One-year forward PE

0

50 0

1000

1500

2000

2500

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

15x 20x 25x 30x


Exhibit 8:Recommendation summary

Company Reco CMP Tgt. price Upside FY2013E FY11-13E FY2013E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharmaceuticals Buy 42 77 82.5 5.5 0.7 4.9 30.6 26.6 37.0

Aurobindo Pharma# Buy 92 166 80.5 6.7 0.8 5.8 9.9 10.2 15.1

Aventis* Sell 2,345 1,937 (17.4) 26.1 3.3 21.6 15.4 15.7 17.1

Cadila Healthcare Buy 723 965 26.8 15.8 2.4 12.8 19.4 25.2 31.1

Cipla Buy 310 369 19.0 16.8 3.1 14.4 23.8 16.6 18.2

Dr. Reddy's Buy 1,614 1,920 19.0 16.8 2.9 11.6 22.7 17.7 25.2

Dishman Pharma Buy 43 68 59.3 3.8 0.9 5.0 3.5 7.1 8.8

Glaxo* Neutral 1,982 - - 22.8 5.2 14.5 14.6 41.0 30.7Indoco Remedies Buy 399 555 39.0 7.2 0.9 5.9 15.6 14.2 16.9

Ipca labs Buy 250 358 34.0 9.7 1.5 6.9 14.8 23.3 24.9

Lupin Buy 456 593 30.1 15.4 2.5 12.8 24.0 23.9 30.8

Orchid Chemicals Buy 153 270 76.5 4.1 1.5 6.9 29.6 11.7 23.4

Ranbaxy* Buy 473 577 22.2 9.0 1.7 7.3 22.0 26.8 25.9

Source: Company, Angel Research; Note: * December year ending;#CAGR in EPS is based on recurring EPS

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November 16, 2011 7

Profit & loss statement

Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EGross sales 1,748 1,787 1,950 2,195 2,494 2,842

Less: Excise duty 140 94 43 44 47 54Net sales 1,608 1,693 1,908 2,151 2,447 2,788Other operating income 4 3 3 5 5 5

Total operating income 1,612 1,696 1,910 2,156 2,452 2,793% chg 1.1 5.2 12.6 12.9 13.7 13.9

Total expenditure 1,093 1,098 1,234 1,392 1,577 1,798

Net raw materials 637 656 702 788 887 1,008

Other Mfg costs 72 97 109 126 87 99

Personnel 151 173 209 241 299 344

Other 233 173 213 237 305 347

EBITDA 516 595 674 759 870 991% chg 7.3 15.5 13.2 12.5 14.7 13.9

(% of Net Sales) 32.1 35.2 35.3 35.3 35.5 35.5

Depreciation & amortisation 21 16 16 18 17 18

EBIT 495 579 658 741 852 972% chg 7.5 17.0 13.6 12.7 15.0 14.1

(% of Net Sales) 30.8 34.2 34.5 34.4 34.8 34.9

Interest & other charges 1 1 - 1 - -

Other income 134 120 101 126 113 122

(% of PBT) - - - - - -

Share in profit of Associates - - - - - -

Recurring PBT 633 701 761 872 971 1,100% chg 11.6 10.8 8.6 14.5 11.4 13.3

Extraordinary expense/(Inc.) (138) (128) (7) 18 - -

PBT (reported) 770 829 769 854 971 1,100Tax 218 238 261 293 342 363

(% of PBT) 28.3 28.7 33.9 34.4 35.2 33.0

PAT (reported) 553 591 508 561 629 737 Add: Share of earn of associate - - - - - -

Less: Minority interest (MI) - - - - - -

Prior period items - - - - - -

Exceptional items - - - - 186PAT after MI (reported) 553 591 508 561 443 737ADJ. PAT 415 463 500 578 443 737% chg 12.8 11.6 8.1 15.5 (23.4) 66.4

(% of Net Sales) 34.4 34.9 26.6 26.1 18.1 26.4

Basic EPS (`) 65 70 60 66 72 87Fully diluted EPS ( ) 65 70 60 66 72 87% chg 0.2 7.0 (14.1) 10.4 8.8 20.7

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November 16, 2011 8

Balance Sheet

Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012ESOURCES OF FUNDSEquity share capital 85 85 85 85 85 85Preference capital - - - - - 1

Reserves& surplus 1,296 1,491 1,701 1,867 2,153 2,476

Shareholders funds 1,381 1,575 1,786 1,952 2,238 2,562Minority Interest

Total loans 6 6 5 5 5 5

Deferred tax liability (20) (30) (45) (57) (35) (35)

Total liabilities 1,366 1,551 1,747 1,900 2,208 2,533APPLICATION OF FUNDSGross block 311 326 333 363 383 403

Less: Acc. depreciation 223 236 241 254 271 290

Net block 87 90 93 109 111 113Capital work-in-progress 5 10 21 9 21 21

Goodwill

Investments 1,346 730 148 118 118 118Current assets 566 1,452 2,183 2,510 2,698 3,144

Cash 155 957 1,734 2,003 2,042 2,396

Loans & advances 163 204 138 174 240 273

Other 249 291 311 333 416 475

Current liabilities 640 730 699 845 741 864

Net current assets (73) 721 1,484 1,665 1,957 2,280Mis. Exp. not written off - - - - - -

Total Assets 1,366 1,551 1,747 1,900 2,208 2,533

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Cash flow statement

Y/E Dec (` cr) CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EPBT and exceptionals 628 701 761 872 971 1,099

Depreciation 21 16 16 18 17 18(Inc)/Dec in working capital 7 (33) 20 88 (253) 31

Less: Other income 134 120 101 126 113 122

Direct taxes paid 252 246 185 314 370 423

Cash Flow from Operations 269 319 511 538 251 604(Inc.)/Dec.in fixed assets (15) (24) (21) (20.6) (33) (20)

(Inc.)/Dec. in investments 31 - (580) (30) - -

Other income 134 120 101 126 113 122

Cash Flow from Investing 150 96 (500) 75 81 102Issue of equity - - - - - -

Inc./(Dec.) in loans - - - 0.26 - -

Dividend paid (Incl. Tax) 297 (355) (394) (296) (293) (354)

Others (597) 742 1,160 (48) - -

Cash Flow from Financing (300) 387 766 (344) (293) (354)Inc./(Dec.) in cash 119 802 777 269 39 353

Opening cash balances 36 155 957 1,734 2,003 2,042Closing cash balances 155 957 1,734 2,003 2,042 2,396

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November 16, 2011 10

Key ratio

Y/E Dec CY2007 CY2008 CY2009 CY2010 CY2011E CY2012EValuation Ratio (x)P/E (on FDEPS) 30.7 28.7 33.5 30.3 27.9 23.1P/CEPS 29.6 28.0 32.4 29.4 36.9 22.5

P/BV 12.3 10.8 9.5 8.7 7.6 6.6

Dividend yield (%) 1.8 2.0 1.5 2.0 1.7 2.1

EV/Sales 10.5 9.5 8.0 7.0 6.1 5.2

EV/EBITDA 32.7 26.9 22.6 19.8 17.2 14.7

EV / Total Assets 12.3 10.3 8.7 7.9 6.8 5.8

Per Share Data (`)EPS (Basic) 65.2 69.8 60.0 66.2 72.0 86.9

EPS (fully diluted) 65.2 69.8 60.0 66.2 72.0 86.9

Cash EPS 67.7 71.7 61.9 68.3 54.3 89.1

DPS 36.0 40.0 30.0 40.0 34.6 41.7

Book Value 163.0 186.0 210.9 230.4 264.2 302.5

Returns (%)

RoCE (Pre-tax) 38.8 39.7 39.9 40.6 41.5 41.0

RoE 32.1 31.3 29.8 30.9 21.1 30.7

Turnover ratios (x) Asset Turnover (Gross Block) 5.3 5.3 5.8 6.2 6.6 7.1

Inventory / Sales (days) 52 48 47 46 45 44

Receivables (days) 11 10 11 9 11 14

Payables (days) 77 80 81 82 76 69

WC cycle (ex-cash) (days) 101 98 90 81 87 92

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November 16, 2011 11

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, pleaserefer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited andits affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Glaxo Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

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