Initiating Coverage

July 13, 2015

Rating Matrix
GSK Consumer Healthcare (SMIBC)
Rating
Target
:
:
Buy
| 7193
| 6062
Target Period : 12-15 months Health consciousness, capex to drive growth
Potential Upside : 19%
GSK Consumer Healthcare (GCHL) is one of the largest malt beverage
YoY Growth (%)
companies in India with strong brands like Horlicks, Boost, Maltova & Viva.
(YoY Growth) FY14 FY15 FY16E FY17E
Over the years, it has been a leader in the malt beverage market with a
Net Sales 52.7 (11.5) 10.9 15.3
EBITDA 52.2 (16.3) 20.6 17.4 combined volume market share of 66%. The company is also involved in
Net Profit 54.5 (13.5) 18.4 17.0 selling & distributing some OTC products like Crocin, Eno, Sensodyne,
EPS (Rs) 54.5 (13.5) 18.4 17.0 Iodex & Breathe Right of GlaxoSmithKline Asia Pvt Ltd and GlaxoSmithKline
* FY14 numbers are for 15 months Pharmaceuticals and generates auxiliary income. The brand equity of
Current & target multiple Horlicks & Boost, rapid pace of growth of OTC products & introduction of
FY14 FY15 FY16E FY17E newer OTC products has led to revenue and PAT CAGR of 17.5% & 20.2%,
P/E 37.8 43.7 36.9 31.5 respectively, in CY09-FY15. We believe the malt beverage industry in India
Target P/E 42.4 49.0 41.4 35.4 is poised to witness swift growth led by higher disposable income, increase
EV / EBITDA 27.1 31.8 26.3 22.4 in rural penetration & premiumisation. We expect the company will witness
P/BV 14.1 12.1 10.3 8.7 a revenue & PAT CAGR of 15.3% & 17.7%, respectively, in FY15-17E. We
RoNW (%) 37.2 27.6 27.8 27.7 initiate coverage on the company with a BUY recommendation.
RoCE (%) 44.7 31.6 31.6 31.4
Undisputed market leadership
* FY14 numbers are for 15 months
Stock Data GCHL has been a market leader in the HFD business with a market share of
Bloomberg/Reuters Code SKB IN / GLSM.BO 58% by value (66% by volume) in a ~| 6000 crore industry. The malt based
Sensex 27,661.4 beverage market is estimated to have grown 2.7x from ~| 2200 crore in
Average volumes 1,224.0 2009 to ~| 6000 crore in 2014 and is expected to reach | 7800 crore by
Market Cap (Rs crore) 25,494.4 2016. GCHL, being the established player in this segment, has benefitted as
52 week H/L 6575 / 4620 a result of this growth in the HFD industry.
Equity Capital (Rs crore) 42.1 Auxiliary income augurs well
Promoter's Stake (%) 72.5
FII Holding (%) 10.6
GCHL also earns auxiliary income apart from the sale of products
DII Holding (%) 2.4 manufactured by it (Horlicks, Boost, Maltova, Viva). The company earns
business auxiliary service commission from certain group companies for
Comparative return matrix (%) services rendered towards selling and distribution of the latter’s products.
Return % 1M 3M 6M 12M
Auxiliary income witnessed strong CAGR of 27.1% from | 46.7 crore in
GSK Consumer (1.9) (3.7) 5.8 29.1
Nestle India (1.5) (15.8) (6.7) 20.0
CY09 to | 154.9 crore in FY15. We expect it to grow at 18.9% CAGR to
HUL 9.8 (3.2) 4.3 42.6 | 219 crore in FY17E.
Colgate 4.9 (7.2) 3.7 29.3 Strong parentage with renowned global brands
Price movement Strong brands of GlaxoSmithKline Plc, parent of GSK Consumer Healthcare,
have always been an added advantage for the company. It has launched
7,000 10,000
many products in India with similar brand names (Sensodyne, Parodontax).
6,000
8,000 We believe it would continue to launch new products from its parent’s
5,000
6,000
product portfolio and would continue to leverage its existing brand equity.
4,000
3,000 Earnings growth justifies valuation
4,000
2,000 Currently, the stock is trading at 31.5x its FY17E earnings of | 192.2/share,
2,000 15% premium to its historical average. With strong growth in revenue &
1,000
0 0 earnings at 15.3% & 17.7%, respectively, during FY15-17E, we have valued
the stock on a triangulated value of P/E, P/sales and DCF methodology,
Nov-10

Nov-12

Nov-14
Jun-10

Apr-11
Aug-11
Jan-12
Jun-12

Apr-13
Aug-13
Jan-14
Jun-14

Apr-15

assigning a target price of | 7193/share.

Price (L.H.S) Nifty (R.H.S) Exhibit 1: Key financials
Research Analyst (| Crore) CY12 FY14 FY15 FY16E FY17E
Net Sales 3,187.5 4,868.6 4,307.6 4,775.6 5,505.6
EBITDA 573.4 872.8 730.1 880.2 1,033.3
Sanjay Manyal
Net Profit 436.7 674.7 583.6 690.8 808.3
sanjay.manyal@icicisecurities.com
EPS (|) 103.8 160.4 138.8 164.3 192.2
Parineeta Rajgarhia
P/E (x) 58.4 37.8 43.7 36.9 31.5
parineeta.rajgarhia@icicisecurities.com
Price / Book (x) 18.7 14.1 12.1 10.3 8.7
EV/EBITDA (x) 41.9 27.1 31.8 26.3 22.4
RoCE (%) 39.5 44.7 31.6 31.6 31.4
RoE (%) 32.1 37.2 27.6 27.8 27.7
Source: Company, ICICIdirect.com Research
FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research

 Shareholding pattern (FY15) Company background
Shareholding Pattern Holding (%) GlaxoSmithKline Consumer Healthcare (GCHL), headquartered in Gurgaon,
Promoters 72.5 is one of the leading consumer healthcare companies in India. The
Institutional investors 13.0 company traces its roots to Beecham (India) Pvt Ltd. in 1948. Institutions
Others 14.6 hold 12.95% of its shares, Horlicks Ltd holds 43.16% of its shares while
GlaxoSmithKline Pte Ltd holds 29.29% of the shares. This translates to a
promoter holding of 72.46% in the company. The public shareholding is at
14.59%, as on FY15. GCHL serves the Indian market as well as international
Institutional holding trend (%) markets of Sri Lanka, Bangladesh, Nepal, Middle East, Kenya, Malaysia,
Myanmar and Pakistan.
14.0 12.0
11.7 11.7 11.5 In its early years, Beecham (India) Pvt Ltd manufactured products like
12.0 10.6
Brylcreem hair cream, Eno fruit salt, Pure Silvikrin, Silvikrin hair dressing,
10.0
Macleans toothpaste and Macleans brand indigestion powder with technical
8.0
and marketing know-how from Beecham Group Ltd, UK. After beginning its
6.0
4.0
India operations as early as 1948, the company used to import its now
2.4
2.0 0.8 0.8 1.2 1.6 ubiquitous health drink ‘Horlicks’ (manufactured by Horlicks Ltd, England),
0.0
bottle it and sell it in India. The year 1955 saw a change in the import policy
following which the import of Horlicks was stopped. It was in 1958 that the
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15
company started manufacturing Horlicks in India under the name Hindustan
FII DII Milkfood Manufacturers Pvt Ltd, promoted by Horlicks Ltd.
GCHL is currently the largest player in the health food drinks (HFD)
category. The company has been able to build a leadership position in the
nutritional food segment with its product offerings viz. Horlicks, Boost,
Maltova and Viva. GCHL also has Crocin, Eno and Iodex in its over the
counter (OTC) portfolio. The company is also present in the premium
toothpaste category with Sensodyne. GCHL also has Breathe Right nasal
strips in its portfolio. The company manufactures and sells only products in
its nutritional food segment. Also, GCHL derives business auxiliary service
commission from certain group companies for services rendered towards
selling and distribution of the latter’s products.

HFD has been the core competency of GCHL in India. The company’s
flagship brand, Horlicks, commands a market share of 52.6% while Boost
enjoys 13.4% market share. The nearest competitor, Cadbury’s Bournvita,
has a market share of ~17% by volume in the above category. Thus,
overall, the company occupies a dominant market position with 66% share
by volume and 58% by value in FY15. The company had generated more
than 90% of its revenues from malt based beverages alone in FY14.
Boost is one of the leading malt based HFDs available in chocolate flavour.
It was developed by the company's R&D team in 1974 and launched in
1975-76. In south India, Boost has a market share of ~26%. In FY00, the
company acquired two new brands Viva and Maltova along with their
patents and trademarks from Jagatjit Industries for | 86.25 crore. This was
done to consolidate its presence in the HFD segment and help it provide
greater choice to its customers.

The company has zero debt on its books. GCHL has its own manufacturing
facilities at Nabha in Punjab, Rajahmundry in Andhra Pradesh and Sonepat
in Haryana. The company’s strong position across its business has led its
total operating income to grow at a CAGR of 17.5% from | 1921.5 crore in
CY09 to | 4307.6 crore in FY15. Profitability for the same period grew at a
CAGR of 20.2% from | 232.8 crore to | 583.6 crore.

ICICI Securities Ltd | Retail Equity Research Page 2

Exhibit 2: Estimated GSK Consumer Healthcare revenue break-up (FY15)

GSK Consumer Healthcare

Gross Sales (|4531 crore)

Malt-based foods Packaged foods Business aux income & misc. income
~91% of the Sales (|4126 crore) ~5% of the Sales ~4% of the Sales
(|229 crore) (|176 crore)

Horlicks Boost Maltova & Viva

~76% of malt-based foods ~21% of malt-based foods constitute rest of malt-
sales (~|3150 crore) sales (~|850 crore) based foods sales

Source: Company, ICICIdirect.com Research

Exhibit 3: Evolution of the company

Import of Horlicks Name again changed Promoter company

Incorporated as was stopped to SmithKline Rechristened as raises its stake in
Beecham (India) followed by India visit Launch of malt- Beecham Consumer GlaxoSmithKline GSK Consumer
Pvt. Ltd of team from Horlicks based health Brands Ltd. Consumer Healthcare Ltd. to
Ltd, UK food drink Boost Healthcare Ltd. 72.5% from 43.16%

1948 1949 1955 1958 1976 1979 1991 1994 2000 2002 2003 2008 2013

Involved Manufactured Horlicks Name of the Renamed as Acquires Relaunched Introduced

primarily in Brylcreem, Eno, manufactured in company changed SmithKline Maltova and Viva Horlicks, new Women’s
dairy and Silvikrin, India by Hindustan to HMM Ltd Beecham brands from flavours Horlicks
milk products Macleans Milkfood Consumer Jagatjit Industries introduced in
and toiletries while imported Manufacturers Pvt Healthcare Ltd the market
business Horlicks in India Ltd, promoted by Ltd
Horlicks Ltd

Source: Company, ICICIdirect.com Research

The years in the figure pertain to calendar year ending

ICICI Securities Ltd | Retail Equity Research Page 3

 Investment Rationale
Enjoys undisputed market leadership currently
Over the years, GSK Consumer Healthcare (GCHL) has been a market leader
in the HFD business with a market share of 58% by value (66% by volume)
in a ~| 6000 crore industry. The malt-based drinks category contributes
~91% of the revenues of the company. The malt based beverage market is
estimated to have grown 2.7x from ~| 2200 crore in 2009 to ~| 6000 crore
in 2014 and is expected to reach ~| 7800 crore by 2016. With higher health
consciousness, large youth population, growing urbanisation & rising
discretionary consumption, HFD remains one of the high growth segments.
India is the largest malt based drinks market globally accounting for ~22%
of retail volume sales. GSK, being the established player in this segment,
has benefited with 17.5% CAGR in total operating income in CY09-FY15
along with volume CAGR of 9.4%. Going forward, we expect revenues to
1) Over 2 billion cups of Horlicks are grow at 15.3% in FY15-17E backed by volume CAGR of 9.7%.
consumed every year in India
GCHL’s nearest competition is from Mondelez’ Bournvita (~17% and 13.9%
2) India accounts for over 80% of share by volume and value, respectively) and Heinz’s Complan (~11% and
Horlicks’ global sales 10.1% share by volume and value, respectively). We believe the company’s
strong brand equity in the segment, significant lead in market share
3) According to a Nielsen study, compared to its competitors, comprehensive health drink portfolio and
Horlicks was chosen as the Most revival of urban discretionary demand, going forward, would maintain its
Trusted hot beverage in 2012 leadership position in the HFD industry.
Source: Company, ICICIdirect.com Research Exhibit 4: Total operating income growth of 15.3% expected in FY15-17E
CAGR of 15.3%
6000

5000 CAGR of 17.5%

4000

3000 5725
4869 4960
2000 4308
2765 3187
1000 1922 2306

0
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 4

 Horlicks: Shining star in portfolio
The fact that Horlicks has been present in India for more than 100 years has
created a strong recall value for the brand in the minds of consumers.
Horlicks, a white malt drink, remains the flagship brand for the company
contributing more than 70% of sales. It occupies a leadership position in the
domestic HFD category with a market share of 52.6% by volume and 46.6%
by value. Horlicks is ~| 3000 crore brand while its variant Women’s Horlicks
crossed the | 100 crore sales mark in 2013. With its strong brand equity,
GCHL has been able to clock consistent double digit revenue growth since
2006.

Exhibit 5: Volume market share (%) - FY15E Exhibit 6: Value market share (%) - FY15E
Others Others
Complan 6% 18.1%
11%

Boost Complan Horlicks

13.4% Horlicks 10.1% 46.6%
52.6%

Boost
11.3%
Bournvita
17% Bournvita
13.9%
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Boost: Firmly ensconced in third position

In the brown malted food drinks, chocolate-flavoured Boost is GSK’s key
brand and is positioned against competitors like Bournvita. It is ranked third
in the overall HFD category with 13.4% market share by volume and 11.3%
share by value. However, in south India, Boost enjoys a market share of
26%. It has enabled the company to cater to consumers (especially in the
Malt is one of the most diuretic beverages northern and western parts of India) who do not prefer white malted food
drinks, which are more popular in south and east India. GCHL has invested
in advertisement and promotion (A&P) expenditure in the Boost brand over
the years. The company has promoted the brand with advertisements
featuring its brand ambassadors (Kapil Dev in 1980s and Sachin Tendulkar
in 1990s). Virender Sehwag and Mahendra Singh Dhoni joined as brand
ambassadors in 2001 and 2008 respectively. Currently, Virat Kohli has been
the brand ambassador for Boost since 2013. According to our estimates, in
the brown malted drink category, Mondelez’ Bournvita remains a market
leader with ~40% market share. Boost remains a close second with ~32%
market share.
Sturdy volume growth
GCHL’s HFD category witnessed robust volume growth at 8.1% CAGR in
CY02-07 and 9.4% CAGR in CY07-FY15E. Being the market leader, GCHL
was the main beneficiary of the HFD category performing well in the past
decade due to increasing health consciousness. It posted strong overall
volume growth at 9.4% CAGR in CY09-FY15. As urban demand contributes
74% of GCHL’s revenues, the company witnessed muted volume growth in
2014 as urban demand itself was subdued during this period. Moreover, we
believe that in Q4FY15, the overall HFD industry suffered a volume
contraction. However, the company was able to increase its market share
by 130 bps while Horlicks and Boost gained 120 bps and 20 bps,
respectively, in market share during Q4FY15. After static volume growth in
Q4FY15, we believe that with a revival in urban discretionary consumption,
going forward, volume growth for the company may see an improvement.
We expect overall volume growth of 9.5% in FY16E and 9.9% in FY17E.

ICICI Securities Ltd | Retail Equity Research Page 5

 Exhibit 7: HFD volume, realisation growth trend for GCHL (%)

25%
According to our estimates, GCHL’s malt-based foods
portfolio witnessed volume growth of 8.9% CAGR in CY02- 20%
FY15
15%

10%

5%

0%
CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 FY14* FY15E FY16E FY17E
-5%

Volume growth (%) Realization growth (%)

Source: Company, ICICIdirect.com Research

*FY14 numbers are annualised

Exhibit 8: Overall volume growth for GCHL (%)

Average ~9.4% growth

18
16 Average ~7% growth
14
12 Average ~2.5% growth
10
8
6
4
2
0
Q2CY11

Q3CY11

Q4CY11

Q1CY12

Q2CY12

Q3CY12

Q4CY12

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q5FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15
Source: Company, ICICIdirect.com Research

Focus on innovation to offer wider assortment

GSK has been at the forefront in responding to the demands of consumers
and launched innovative products in the market. The company drove line
extensions for the Horlicks base brand, which was primarily promoted as
the family health drink with the launch of Horlicks Junior for toddlers in the
age group of 1-3 years in 1995 (there are ~11.7 crore children in the age
group 0-4 years as per Census 2011), Mother’s Horlicks for the nutritional
needs of pregnant and breastfeeding women (launched in 1997), Horlicks
Lite with no added sugar for diabetics (launched in 2005) and Women’s
Horlicks (launched in 2008). By successfully launching variants from time to
time, GSK has strengthened its core brand values, apart from addressing
new consumer needs, thus bringing such consumers into its fold. These
variants have helped the base brand to capture and retain market share.

ICICI Securities Ltd | Retail Equity Research Page 6

 Exhibit 9: Horlicks base brand & variants’ contribution in Horlicks sales

100
90 16 23 25
80
70
60
50
40 84 77 75
30
20
10
0
2007 2011 2014

Base brand Variants & product extensions

Source: Company, ICICIdirect.com Research

Leveraging premiumisation, non-malted food drink category to its advantage

GCHL took the premiumisation route in 2011 with the launch of Horlicks
Gold. In FY14, the company launched 11 new or restage products including
Horlicks ProMind, Horlicks Kesar Badam (60% premium to basic Horlicks),
Boost biscuit and Horlicks Nutribic, premium nutrition biscuits. In FY15,
GCHL launched seven new or restage products. Although the foods
business contributes ~5% to revenues, it has been growing at more than
20% in the last 10 quarters. Horlicks Oats, which marked the company’s
foray into the breakfast category in 2011, more than doubled its business
during FY14 and captured second position in terms of market share in
South India. Under the foods portfolio, the company expects 15%
sustainable growth in Horlicks biscuits, going ahead. GCHL plans to launch
‘Instant Horlicks’ that can be consumed with cold water rather than the
usual practice of having it with hot/warm water/milk. This is basically to
beat the company’s seasonality in sales. The company has expertise when
it comes to R&D capabilities by looking at its products. It claims to have
some innovative product offerings in development, thus making the
innovation pipeline robust in the medium to long term. The management
also believes that price hikes of 6-7% can be absorbed in the long run on
the back of the pricing power it commands.
Exhibit 10: Variants of Horlicks, Boost & competitive brands
Brand Variant Qty (|) Brand Variant Qty (|) Brand Variant Qty (|) Brand Variant Qty (|)
Horlicks Regular 1 kg 372 Boost 3x Stamina 750 g 315 Bournvita Cadbury 1 kg 380 Complan Plain 500 g 209
Chocolate 1 kg 370 Choco Éclair 450 g 225 L'il Champs 500 g 250 Chocolate 1 kg 445
Lite 450 g 250 Shakti 500 g 200 Kesar Badam 400 g 235
Mother's 500 g 450 5 Star 500 g 190 Pista Badam 400 g 235
Junior 500 g 245 Memory 400 g 245/275
Kesar Badam 400 g 240 NutriGro 400 g 275
Women's 400 g 260 Choco Royale 400 g 360
ProMind 400 g 245 Kulfi 400 g 235

Source: Company, ICICIdirect.com Research

GCHL has strategically launched different variants at the time of slowing of

its base brand Horlicks. However, other variants of Horlicks are witnessing
strong growth. Women’s Horlicks has been growing at 60-65% YoY, albeit
on a small base. Thus, with the base brand witnessing a slowdown in
growth, we expect these line extensions and premium offerings to support
Horlicks and thereby, contribute in driving the next level of growth for the
company.

ICICI Securities Ltd | Retail Equity Research Page 7

Exhibit 11: Revenue from malt-based food Exhibit 12: Revenue from packaged foods

6000
350
5000
300
4000
250
3000 200
2000 150 314
273 267
1000 100 200 229
1340 1633 1924 2284 2656 3056 4682 4126 4834 5599 136 169
0 50 90
48 60
0
CY07

CY08

CY09

CY10

CY11

CY12

FY14*

FY15

FY16E

FY17E
CY07 CY08 CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Revenue from malt-based food (| crore) Revenue from packaged foods (| crore)

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months * FY14 numbers are for 15 months

Auxiliary income augurs well

GCHL also earns auxiliary income apart from the sale of products
manufactured by it (Horlicks, Boost, Maltova, and Viva). The company earns
business auxiliary service commission from certain group companies
(GlaxoSmithKline Asia Pvt Ltd and GlaxoSmithKline Pharmaceuticals) for
services rendered towards selling and distribution of the latter’s products
(Crocin, Eno, Iodex, Breathe Right, Sensodyne). Auxiliary income witnessed
strong CAGR of 26.4% from | 46.7 crore in CY09 to | 154.9 crore in FY15.
I-direct estimate of OTC Products Sales (FY14E) The digestive antacid market in India is estimated at ~ | 800 crore (2012-
Brand Sales (in | crore) 13). The liquid and tablet formats represent 55% of the total digestive
ENO 400
antacid market in India while powders comprise the remaining 45%. GSK
Crocin 120
has cemented its position with Eno powder and has a 41% market share.
Iodex 100
The company introduced liquid and tablet versions of its Eno brand in 2013
to further strengthen its leadership position in the digestive antacid market
Sensodyne 240
in India. India is Eno’s second largest market after Brazil. Eno is currently
Ostocalcium 42
growing at ~30%. This bodes well for GCHL.
Source: Company, ICICIdirect.com Research
Exhibit 13: Auxiliary income (| crore) trend
CAGR of 18.9%
250.0 219.0

200.0 183.9
CAGR of 27.1% 168.1
154.9
150.0
97.2
100.0 72.5
46.7 54.4
50.0

0.0
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Auxiliary income (| crore)

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

Compared to the global oral hygiene market, which is expected to grow at

3-4% CAGR, India’s market is expected to grow at 14% CAGR. The size of
the Indian oral hygiene industry is ~| 8000 crore of which toothpastes
account for ~| 6000 crore. The broad segments in toothpaste category are
germ and tooth decay, sensitivity, gel, gum, whitening and multi-benefits.

ICICI Securities Ltd | Retail Equity Research Page 8

 Sensitivity is the fastest growing segment with a growth rate of ~30% and
Sensodyne displaced Colgate Sensitive to become the
estimated at ~| 950 crore. Sensodyne, launched by GSK in 2011, became
leader in sensitive toothpaste category
the market leader within two years (26% share in 2014) by displacing
Colgate Sensitive toothpaste in the premium sensitive toothpaste category.
It has already become ~| 240 crore brand.

OTC products do not require authorisation by medical practitioner unlike

prescription medications. OTC products also have wider points of sale as
they can be availed at retail outlets (~88 lakh retail outlets across India).
However, prescription medicines can be accessed only through the chemist
network (~8 lakh chemists across India). According to the company, there
is no risk of the auxiliary income being re-negotiated with group
companies. It expects auxiliary income to grow at 15-20% on a long term
basis. It earned | 154.9 crore as auxiliary income in FY15. With Eno and
Sensodyne performing well in their respective categories and growing at
~30% on a low base, we believe overall this augurs well for GCHL, going
forward, with prospects of increased auxiliary income adding to the
revenues. We expect auxiliary income to grow at 18.9% CAGR to | 219
crore in FY17E.
Distribution network
GCHL has a robust distribution network in place with direct coverage of ~8
lakh retail outlets and indirect coverage of ~30 lakh retail outlets in mid-
2014 (indirect coverage of ~25 lakh outlets in mid-2013). As of FY15, the
rural reach of the company stood at 2 lakh outlets across 27000 villages.
The company intends to make efforts to substantially enhancing
distribution, especially in the weaker zones of West and North India and
expand its reach to ~37 lakh retail outlets by December 2015. Currently, the
sales mix is such that the rural contribution to total revenues is ~26% while
urban contribution stands at ~74%. The region wise sales mix consists of
South, East, North, West regions of India contributing 46%, 34%, 7% and
5%, respectively, to total revenue while exports contribution is at 8%. As
the company has increased its presence in rural areas, its lower priced
smaller SKUs have been growing faster than bigger SKUs. Low unit packs
contribute ~6% of the revenues and are witnessing growth of ~30%. We
believe that by increasing its focus to untapped regions, GSK can leverage a
strong distribution network to its advantage as the same network can
benefit the nutritional as well as the OTC portfolio of the company.
Exhibit 14: Distribution reach (in millions) Exhibit 15: Region wise sales contribution

Exports
8 West 8%
7 5%
6
North
5
7%
4 South
7.2
3 6.0 5.8 5.6 46%
5.1
2 4.0
3.0 2.9
1
0 East
HUL ITC Dabur P&G Colgate Marico GSK CH Jyothy 34%
Labs

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 9

 Higher A&P spend to help increase footprint, fuel growth for company
The sales and promotion expenditure, as a percentage of total operating
income, for GCHL has been on the higher side compared to its peers. By
maintaining higher advertisement expenses (~60% of total A&P expenses),
For the last five years, A&P expenditure as a percentage of the company has been able to effectively drive penetration and the overall
total operating income has been above 15.5% for GSK industry’s growth through increasing awareness of health benefits of HFD,
Consumer Healthcare thereby supporting its new launches. The A&P spend as a percentage of
sales for GCHL has increased from 12.6% in CY08 to 16.7% in FY15. For the
last five years, A&P expenditure has been consistently above 15.5% of its
total operating income. The company re-launched Horlicks and ran an
advertisement campaign in 2003 to change its positioning as a nutritional
supplement designed specifically for growing children (there are ~35.7
crore children in the age group of 0-14 years as per Census 2011).
This campaign was successful and the company benefited from this re-
launch. Further, GCHL spends ~40% of its total A&P spend on promotional
activities. The company has also introduced various campaigns like ‘5 Signs
of Growth’, ‘Horlicks Swasthya Abhiyan’, ‘Village Level Entrepreneurs’ in
order to achieve further market penetration in rural territories and at the
same time strengthen its market share. Going ahead, A&P expenses
estimated by the company are 16-17% of sales. They are also open to
tweaking the same, on the higher side, to enhance productivity. We believe
GCHL would continue to remain the dominant player. The company would
benefit in terms of boost in volume growth on the back of sustained high
A&P spend without any significant impact on margins, going forward.

Exhibit 16: GSK A&P spend (| crore) Exhibit 17: FMCG companies A&P spend as % of net sales (FY15)
959
1000 831 18% 20
811
717 18%
800 17% 15
600 496 17%
438
372 16% 10
400 303 17.3 18.1
16%
15% 12.8
200 5 9.6 8.4
15%
0 14% 0
CY09

CY10

CY11

CY12

FY14*

FY15

FY16E

FY17E

Nestle* HUL GSK Britannia Colgate

Consumer
Healthcare
A&P spend (| crore) % of total operating income

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months *CY14 value

Huge capex planned

GCHL has exhausted its current capacity. Considering the rising consumer
demand for healthier products, the management has huge capital
expansion plans. The company plans to set up a greenfield plant in south
India. In a discussion we had with the company, they said they have been
aggregating significant cash on their balance sheet with this purpose on
mind. The cash on its balance sheet was at | 1838 crore in FY14 and | 2296
crore in FY15. The company is planning a capex of ~| 1500 crore in the
next three to four years.

ICICI Securities Ltd | Retail Equity Research Page 10

 Strong parentage with renowned global brands
Strong brands of GlaxoSmithKline Plc, the sixth-largest pharmaceutical
company in the world and parent company of GSK Consumer Healthcare,
have always been an added advantage for the company. The company has
launched many products in India with similar brand names, capturing the
brand value of GlaxoSmithKline Plc’s product. GCHL has been present in
various categories and can launch many products without investing much
in R&D and brand building.
In 2013, GlaxoSmithKline Plc spent | 4800 crore and
The company launched Parodontax, GSK’s globally highly successful
increased its stake in GSK Consumer Healthcare from
toothpaste, in early 2013 to address the problem of bleeding gums. The
43.2% to 72.5% through open offer
niche gum care segment is ~5% of the total toothpaste market (~| 6000
crore). We believe the company would continue to launch new products
from GlaxoSmithKline Plc’s product portfolio and continue to leverage its
existing brand equity.
Exhibit 18: GSK Consumer Healthcare global brands

Categories Key brands

Pain Relief Excedrin Fenbid Imigran Resolve Grandpa Ibuevanol
Formigran Iodex Med-Lemon Panadol Synthol
Voltaren

Respiratory Actified Actiprotec Beechams Breathe Right Cholinex

Coldrex Contac Day & Night Nurse Flonase Iodosan
Nicorette Nicotinell NiQuitin Otrivin Parasinus
Piri Allergy Rinazina Sinecod Theraflu

Oral Health Aquafresh Astringosol Biotene Chlorhexamed Corsodyl

Dr. Best Macleans Polident/Poligrip/Corega Super Wernet's Pronamel
Sensodyne Parodontax

Nutrition/Gastro Intestinal Alikal Benefiber Boost CalSource Cetebe

Citrucel ENO GlaxoseD Horlicks Maltova
Oscal Scott's MaxiNutrition Prevacid24HR Sonrisal
TUMS Viva Rutinoscorbin Zentel

Skin Health Abreva Acne-Aid Ansolar Babix Bactroban

Ceridal Clariderm Driclor Duofilm Fenistil
Hidrafil Hinds Hydrozole Impruv Lamisil
Oilatum PanOxyl Physiogel Polystar Prevex
Sarna Spectraban Spectro Stieprox SUNMAX
Uremol Zeasorb Zovirax

Weight Management Alli

Eye Care Eye-Mo

Source: Company, ICICIdirect.com Research

Low penetration, high growth opportunity

The HFD industry is estimated to be ~| 6000 crore in size with penetration
of ~25%. The industry is growing at ~15% per annum. We believe that
with HFD penetration in urban India itself being low (~45%), rural India has
further lower penetration (~15%), thereby providing huge scope of growth
for the company. Though traditional grocers remain the dominant channel,
the contribution of modern retailers has been increasing in recent times.
With supermarkets and hypermarkets now firmly established as retail
channels across India and looking to differentiate themselves on offerings,
health and wellness products have found shelf space as well as the target
audience for their products. This provides headroom to GCHL (66% market

ICICI Securities Ltd | Retail Equity Research Page 11

 share) with potential growth opportunity to cater to the untapped market.
This allows the company further scope to penetrate the Indian market on
the back of GCHL’s robust distribution network (direct coverage of ~8 lakh
retail outlets and indirect coverage of ~30 lakh retail outlets in mid 2014).
Benign commodity prices to further aid margins
GCHL’s key raw materials include malt and malt extract, milk powder and
liquid milk. These materials together account for more than 60% of total
cost incurred by the company on raw materials. With the recent downtrend
in global commodity prices, we believe domestic prices would remain
softer in the medium-term, consequently benefiting GCHL. It provides
scope for a further improvement in margins, going forward.
Exhibit 19: Milk prices trend Exhibit 20: Global milk prices trend

45 30
40 25
20
35
15
30 10
25 5
20 0

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14
May-09

May-10

May-11

May-12

May-13

May-14

May-15
Jun-10
Oct-10

Jun-11
Oct-11
Feb-11

Oct-12
Feb-12
Jun-12

Feb-13
Jun-13
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15

Milk prices (| per litre) Milk prices ($ per 100 pounds)

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Exhibit 21: Milk powder prices trend Exhibit 22: Barley prices trend

320 17
16
270 15
14
220
13
170 12
11
120 10
Nov-10
Jun-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Dec-13

Dec-14
Mar-14

Aug-14

Jan-15

Jun-15

Jun-13

Jun-14

Jun-15
Milk powder prices (| per kg) Barley prices (| per kg)

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 12

 Robust balance sheet
Commanding a dominant market share in the HFD segment, GCHL has
been able to consistently lower its working capital intensity through
expansion in supplier credit while there has not been any significant
increase in debtor days at the same time. This was possible mainly because
GCHL enjoys significant buying power. This has enabled the company to
register negative working capital with healthy cash flows. Also, GCHL has
zero net debt on its books in FY15. The company plans to expand its
capacity with a planned greenfield project. GCHL has specifically
accumulated a cash pile for this purpose (| 1838 crore in FY14 and | 2296
crore in FY15). Going forward, with judicious utilisation of cash available on
the balance sheet either by way of capex plans or by way of higher
dividend payout, we expect return ratios to improve.

Exhibit 23: Negative working capital cycle

0
-100 CY09
-158 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

-200
-300 -353 -376
-400
-500 -584
-601
-600 -683 -680
-700 -749

-800

Working capital excluding cash (| crore)

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 13

 Key Financials
Strong revenue growth of 15.3% expected in FY15-17E
GSK Consumer Healthcare’s revenues have more than doubled in the past
five years from | 1921.5 crore in CY09 to | 4307.6 crore in FY15 at a CAGR
of 17.5%. This increase in revenues has been led by a mix of both volume
growth (9.4% CAGR) and realisation growth (7.4% CAGR). With its
strengthening distribution network (from direct coverage of 3.5 lakh retail
outlets in 2009 to over 8 lakh retail outlets in 2014), significant lead in
market share over rivals and launch of innovative variants to support base
brand Horlicks, we believe GCHL would be able to maintain high volume
growth of 9.7% along with 5.1% realisation growth. We estimate revenues
will grow at healthy 15.3% CAGR during FY15-17E.
Exhibit 24: Revenues (| crore) trend

5725
6000
4869 4960
5000 4308
4000
3187
2765
3000 2306
1922
2000

1000

0
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Total operating

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

Margins to post steady improvement to 18% by FY17E

GCHL’s operating margins increased from 16% in CY09 to 17.9% in FY14. A
change in product mix and sustainable price hikes taken by the company
have led to an uptick in operating margins. However, margins dipped to
16.9% in FY15 on the back of higher employee cost and persistently higher
A&P expenses. We believe a further increase in A&P spends and expiry of
tax benefits at the Baddi facility in May 2015 would impact margins
negatively. The excise duty as percentage of net sales was at ~5.3% in
CY09-FY14. Going forward, we expect excise duty as a percentage of net
sales to increase to 6.5% in FY16E and 7% in FY17E. However, we expect
benign raw material costs to more than offset the negative impact of higher
A&P spend. We model operating margins of 17.7% in FY16E and 18% in
FY17E.

ICICI Securities Ltd | Retail Equity Research Page 14

 Exhibit 25: Operating margins (%) trend

20%
18.1% 18.0% 17.9% 18.0%
17.7%
18% 16.9%
16.0% 16.2%
16%

14%

12%

10%
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

Net profit to grow 17.7% in FY15-17E

GCHL posted 20.2% CAGR increase in its profit during CY09-FY15 largely
on the back of improved operating margins. We estimate depreciation will
increase, going forward (| 95 crore in FY16E and | 117 crore in FY17E
compared to | 62.1 crore in FY15) due to the capex plans of the company.
We expect net profit growth at 17.7% CAGR during FY15-17E.
Exhibit 26: PAT (| crore) trend

900 CAGR of 17.7%

800
700
CAGR of 20.2%
600
500
400 808
675 691
300 584
200 437
300 355
100 233
0
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

PAT (| crore)

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

Return ratios
GCHL’s return ratios have been in the lower range (~35-40%) compared to
other FMCG companies. This is because it has huge cash accumulated on
its balance sheet (| 1464.1 crore in CY12, | 1838.7 crore in FY14 and
| 2296.5 crore in FY15). However, we believe that once the company uses
this cash for its capex plans, its return ratios would improve post-FY17E as
some tangible improvement in return ratios would take some time to reflect
after it has done the capex in FY16E-17E.

ICICI Securities Ltd | Retail Equity Research Page 15

 Exhibit 27: Return ratios trend (%)

50 44.7
45 39.8 39.5
40 34.8
37.2 31.6 31.6 31.4
35 29.2
31.3 31.0 32.1
30
27.6 27.8 27.7
25 25.7
20
15
10
5
0
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

RoCE (%) RoNW (%)

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

Free cash flow

GCHL has consistently delivered high cash flows (average of over | 400
crore since CY09) from its business operations. Due to such high free cash
flows, the company can undertake capex plans using internal accruals
without having to rely much on external sources of funds. We expect
sustainable free cash flows of ~| 300-400 crore despite aggressive capex
plans in next 3-4 years.
Exhibit 28: Free cash flow (| crore) trend

900
771.4
800
700 622.9
600
455.0 432.2
500 417.2 425.3

400 338.2 339.6

300
200
CY09 CY10 CY11 CY12 FY14* FY15 FY16E FY17E

Free Cash Flow (| crore)

Source: Company, ICICIdirect.com Research

* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 16

 Risk & concerns
Regulatory risk
With more than 70% of GCHL’s revenues being derived from sales of its
flagship white malt drink Horlicks, the company is largely dependent on one
product for a significant portion of revenues. There exists regulatory risk
pertaining to failure to conform to quality standards and comply with
procedures laid down by respective government authorities. We believe
that any adverse impact witnessed in this product may hamper the
company’s growth prospects.
Presence of competing MNCs in HFD category
The HFD business contributes more than 90% to GCHL’s revenues. Though
it currently enjoys a dominant position in the market, it faces competition in
the form of Bournvita (Mondelez) and Complan (Heinz). Both products enjoy
high brand equities. Cadbury and Heinz are both keen to further expand
given the fact that the lucrative HFD market is still substantially under-
penetrated and has high growth potential. Hence, the aggressive expansion
plans of these MNCs may play spoilsport for GCHL’s growth prospects.
Expiry of tax benefits at Baddi may impact margins
For the unit set up in Baddi in 2005 (Legacy Foods), GCHL enjoyed tax
benefits in the form of excise duty exemption from the Central Government.
This benefitted 55% of the company’s products. However, this tax
exemption expired in May 2015 while a 7% excise duty is expected to come
back. This may impact gross margins as the excise rate is likely to increase,
going forward.
Commodity price volatility
Barley and milk are two key ingredients (more than 60% of total raw
material cost), which reflects dominantly in the raw material cost sheet of
the company. Being commodities, they are vulnerable to price fluctuations
in the market, thereby impacting the operating margins of the company.
Threat of increase in royalty paid to parent firm
Formerly, there was a cap on ‘Royalty payable under technical
collaboration’, which was set at 8% on export sales and 5% on domestic
sales. The Government of India did away this limit on royalty payments in
2009. In Budget 2013, the government raised the tax rate on royalty and fee
for technical services paid to overseas entities from 10% to 25%. However,
in Budget 2015, the government reduced this tax rate from 25% to 10%. We
believe currently GSK Consumer Healthcare pays royalty to its parent
company towards the sale of Horlicks in India. We estimate that the royalty
percentage is ~5% on sales of Horlicks while it is ~3.3% of total sales. We
remain wary of the fact that a possible increase in royalty payments to the
parent company may impact operating margins of GCHL.
Low return ratios may prove to be a drag
We believe that presence of significant cash (| 2296.5 crore in FY15) on the
company’s balance sheet is a major reason behind lower return ratios as
compared to its peers. Inability to utilise this cash either in the form of
capacity expansion or by way of dividend payout may further pressurise the
ratios, going forward.

ICICI Securities Ltd | Retail Equity Research Page 17

 Valuation
We have valued the stock on a triangulated value of P/E, P/sales & DCF
methodology, assigning a target price of | 7193/share. Historically, GCHL
has traded at~6% premium to the FMCG index.

PE band
At the CMP, the stock is trading at 36.9x its FY16E of | 164.3 and 31.5x its
FY17E EPS of | 192.2, which is at a 15% premium to its historic average
(average has been more than 27x one year forward P/E). We believe this
premium is justified due to healthy growth in revenues (17.5% CAGR) and
earnings (20.2% CAGR) from CY09-FY15, leadership position in the HFD
market, strong free cash flows and visibility in earnings growth. Going
ahead, we expect the revenue and earnings to post a CAGR of 15.3% and
17.7%, respectively, in FY15-17E. We assign the stock a P/E multiple of 35x
its FY17E EPS of | 192.2 to arrive at a fair value of | 6803/share.

Exhibit 29: Price to earnings (x) trend Exhibit 30: One year forward P/E (x)

45 8000
40 7000
35 6000
30 5000
25 4000
20 3000
2000
15
1000
10 0
5
Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15
0
Jun-10

Jun-11

Jun-12

Jun-13

Jun-14
Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Close (|) 16x 22x 28x 34x 40x

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Price to sales (P/Sales)

At the CMP, the stock is trading at 5.3x its FY16E sales/share of | 1135.6
and 4.6x its FY17E sales/share of | 1309.1. Historically, the stock has traded
in the range of 2.3-5.5x its sales per share. Using P/S valuation, assigning it
a multiple of 6x its FY17E sales/share 1309.1, the fair value for GCHL would
be | 8051/share.
Exhibit 31: Price to sales (x) trend

0
Apr-10

Aug-10

Apr-11

Aug-11

Apr-12

Aug-12

Apr-13

Aug-13

Apr-14

Aug-14

Apr-15
Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 18

 DCF valuation
Using the DCF methodology, we have arrived at a fair value of | 6699/share,
considering a terminal growth of 6% and weighted average cost of capital
(WACC) of 9.5%. We have assumed the company would witness revenue
growth (CAGR FY15-25E) of 16.5%, operating margins of 17.8% and
average tax rate of 29.6% till 2025 given the corporate tax is likely to come
down in the next decade.
Exhibit 32: DCF valuation
| (crore) CY09 CY10 CY11 CY12 FY14 FY15 FY16E FY17E FY18E FY19E FY19E
EBITDA 306.6 374.1 501.0 573.4 872.8 730.1 696.4 814.2 1,122.4 1,307.7 1,307.7
Depreciation 42.0 39.7 46.0 36.1 62.5 62.1 95.0 116.9 83.4 97.1 97.1
Tax 121.1 152.0 185.1 211.9 341.3 305.5 349.6 390.9 332.5 375.3 375.3
NOPAT 143.5 182.4 269.9 325.4 468.9 362.5 251.8 306.4 706.6 835.3 835.3
Capital Expenditu 47.7 118.1 85.3 77.3 49.8 217.8 350.0 657.7 128.3 149.4 149.4
Change in Workin (227.9) (195.4) (22.3) (225.0) (82.8) 3.4 96.2 (164.7) (149.4) (148.2) (148.2)
Free Cash Flow 365.7 299.5 252.9 509.1 564.5 203.4 (99.4) (69.7) 811.1 931.1 931.1

DCF Valuation | crore

PV of firm 27,355.1 Assumptions
Less: Current Debt - WACC 9.5%
Total present value of Equity 27,355.1 Revenue CAGR over CY09 - FY25E 16.4%
Cash Per Share 194.9 Terminal Growth 6.0%
Number of Equity Shares outstan 4.2
DCF - Target price (|) 6,699.5
Source: Company, ICICIdirect.com Research

Exhibit 33: DCF sensitivity analysis

WACC %
8.5% 9.0% 9.5% 10.0% 10.5%
5.0% 7,578 6,426 5,545 4,851 4,292
Growth Rate %

5.5% 8,577 7,123 6,049 5,227 4,579

Terminal

6.0% 9,983 8,055 6,700 5,698 4,930

6.5% 12,109 9,368 7,570 6,305 5,370
7.0% 15,697 11,352 8,795 7,118 5,938
Source: Company, ICICIdirect.com Research

Triangulated valuation
We assign a weight of 0.33x to the value arrived at from DCF, P/E and
P/sales valuation, respectively. We arrive at a target price of | 7193/share.

Exhibit 34: Triangulated valuation

Multiple (x) Fair value (|) Weightage Value (|)
Mcap to sales 6.0 8,051.2 0.3 2,737.4
PE 35.0 6,803.6 0.3 2,245.2
DCF 6,699.5 0.3 2,210.8

Target Price 7,193.4

CMP 6,062.2

Upside (%) 19
Rating Buy
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 19

Exhibit 35: Peer comparison
CMP M Cap EPS (|) P/E (x) Price/Sales (x) RoCE (%) RoE (%)
Sector / Company (|) TP(|) Rating (| Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E
Colgate (COLPAL) 1,989 2,036 Hold 27,525 41.1 45.5 49.8 48.4 44.8 40.0 7.0 6.6 5.8 97.0 82.5 77.1 72.5 62.2 56.6
Dabur India (DABIND) 282 263 Hold 44,816 6.1 7.4 8.1 46.4 35.4 34.7 5.8 5.2 4.6 41.7 41.7 38.2 35.6 34.4 30.6
GSK Consumer Healthcare 6,062 7,193 Buy 25,494 138.8 164.3 192.2 43.7 43.8 31.5 5.9 5.3 4.6 31.6 31.6 31.4 27.6 27.8 27.7
Hindustan Unilever (HINLEV) 900 902 Hold 194,712 19.9 20.4 24.4 45.1 44.2 37.0 6.5 5.9 5.2 132.2 132.3 134.3 118.0 115.9 107.0
ITC Limited (ITC) 310 387 Buy 252,116 12.1 12.6 13.7 25.7 30.8 22.6 7.0 6.4 5.9 40.5 41.1 43.4 33.5 31.3 31.8
Jyothy Lab (JYOLAB) 301 272 Hold 4,724 6.7 10.5 11.6 45.0 25.9 25.9 3.1 2.8 2.5 10.6 13.9 15.8 11.1 15.5 21.7
Marico (MARIN) 430 420 Hold 24,506 8.9 2.8 2.7 48.4 151.4 161.9 4.3 3.6 3.1 48.8 47.0 46.4 35.9 32.1 31.6
Nestle (NESIND) 5,963 6,039 Hold 57,126 122.9 75.6 120.8 48.5 79.9 49.4 5.8 6.3 5.1 60.6 56.1 85.9 47.2 41.8 32.8
Tata Global Bev (TATTEA) 135 158 Hold 9,029 4.0 6.3 7.4 33.6 25.1 18.3 1.2 1.1 1.0 8.1 8.0 8.6 8.2 4.2 6.3
VST Industries (VSTIND) 1,693 1,700 Hold 2,674 99.3 88.2 106.3 17.1 19.3 15.9 3.2 3.2 2.9 59.3 52.5 60.3 45.8 43.2 37.5
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 20

 Exhibit 36: Profit & loss account
(| Crore) CY12 FY14 FY15 FY16E FY17E
Net Sales 3,187.5 4,868.6 4,307.6 4,775.6 5,505.6
Other Operating Income - - - 183.9 219.0
Total Operating Income 3,187.5 4,868.6 4,307.6 4,959.5 5,724.6
Other Income 113.8 206.9 221.9 255.2 282.9
Total Revenue 3,301.3 5,075.5 4,529.5 5,214.7 6,007.5

Raw Material Expenses 924.5 1,368.8 1,220.1 1,375.4 1,570.3

Employee Expenses 301.1 470.1 431.3 478.6 552.4
Marketing Expenses 496.5 810.6 717.1 830.7 958.9
Administrative Expenses 191.9 284.1 297.0 332.3 383.5
Packaging Exp 241.9 361.9 322.0 362.0 417.9
Manufacturing Exp 296.7 440.9 414.7 448.8 518.1
Power & Fuel 62.9 98.2 80.9 100.2 115.6
Royalty 105.6 156.8 134.4 158.7 183.2
Mis Exp 7.6 (4.4) 3.0 2.5 2.9
Total Operating Expenditure 2,614.1 3,995.8 3,577.5 4,079.3 4,691.3

EBITDA 573.4 872.8 730.1 880.2 1,033.3

Interest 2.4 1.1 0.7 - -
PBDT 684.8 1,078.6 951.2 1,135.4 1,316.1
Depreciation 36.1 62.5 62.1 95.0 116.9
PBT 648.7 1,016.1 889.1 1,040.4 1,199.2
Total Tax 211.9 341.3 305.5 349.6 390.9
PAT 436.7 674.7 583.6 690.8 808.3

EPS 103.8 160.4 138.8 164.3 192.2

Source: Company, ICICIdirect.com Research
* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 21

 Exhibit 37: Balance sheet

(| Crore) CY12 FY14 FY15 FY16E FY17E

Equity Capital 42.1 42.1 42.1 42.1 42.1
Reserve and Surplus 1,318.8 1,770.7 2,070.9 2,439.7 2,876.4
Total Shareholders funds 1,360.9 1,812.8 2,112.9 2,481.7 2,918.4
Total Debt - - - - -
Deferred Tax Liability - - - - -
Other Non Current Liabilities - - 9.9 9.9 9.9

Liability side total 1,360.9 1,812.8 2,330.5 2,699.3 3,136.0

Total Gross Block 656.2 854.6 1,059.3 1,409.3 1,709.3

Less Total Accumulated Depreciation 462.4 514.7 567.5 662.6 779.5
Net Block 193.8 339.9 491.7 746.7 929.8
Total CWIP 197.2 38.5 42.3 42.3 400.0
Total Fixed Assets 391.1 378.4 534.1 789.0 1,329.8

Inventory 369.6 407.4 466.3 523.4 527.9

Debtors 112.6 299.3 313.4 287.8 331.8
Loans and Advances 66.8 75.5 85.2 238.8 275.3
Other Current Assets 43.8 132.9 144.0 119.4 137.6
Cash 1,464.1 1,838.7 2,296.4 2,334.0 2,394.7
Total Current Assets 2,057.0 2,753.8 3,305.3 3,503.4 3,667.4

Creditors 478.4 671.6 759.8 850.5 980.4

Provisions 352.1 394.0 395.1 425.2 490.2
Other Current Liabilities 363.0 533.0 534.1 477.6 550.6
Total Current Liabilities 1,193.5 1,598.6 1,689.0 1,753.2 2,021.2
Net Current Assets 863.5 1,155.2 1,616.3 1,750.2 1,646.1
Deferred Tax Assets 61.6 90.3 104.3 84.3 84.3
Long-term loans and advances 44.7 188.9 75.7 75.7 75.7

X
Assets side total 1,360.9 1,812.8 2,330.5 2,699.3 3,136.0
Source: Company, ICICIdirect.com Research
* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 22

 Exhibit 38: Cash flow statement

(| Crore) CY12 FY14 FY15 FY16E FY17E

Profit after Tax 436.7 674.7 583.6 690.8 808.3
Depreciation 36.1 62.5 62.1 95.0 116.9
Cash Flow before working capital cha 475.3 738.4 646.4 785.8 925.2
Inventory 0.3 (37.8) (58.8) (57.1) (4.6)
Debtors (13.4) (186.7) (14.0) 25.5 (44.0)
Loans and Advances (6.8) (8.7) (9.8) (153.5) (36.5)
Other Current Assets (10.4) (89.1) (11.1) 24.6 (18.2)
Net Increase in Current Assets (30.3) (322.3) (93.7) (160.5) (103.3)
Creditors 119.1 193.2 88.2 90.7 130.0
Provisions 77.4 41.9 1.2 30.1 65.0
Other Current Liabilities 58.7 170.1 1.0 (56.5) 73.0
Net Increase in Current Liabilities 255.2 405.1 90.4 64.3 268.0
Net CF from operating activities 700.2 821.2 643.0 689.6 1,089.9

Deferred Tax Assets (21.7) (28.7) (14.0) 20.0 -

Fixed assets - - - - -
Long-term loans and advances 5.8 (144.2) 113.1 - -
(Purchase)/Sale of Fixed Assets (77.3) (49.8) (217.8) (350.0) (657.7)
Deferred Tax Liability - - - - -
Other Non Current Liabilities - - 9.9 - -
Net CF from investing activities (93.3) (222.7) 98.9 (330.0) (657.7)

Total Outflow on account of dividend (220.0) (222.9) (278.4) (322.0) (371.6)

Net CF from financing activities (222.4) (223.9) (284.2) (322.0) (371.6)

Net Cash flow 384.6 374.5 457.7 37.6 60.6

Opening cash 1,079.6 1,464.1 1,838.7 2,296.4 2,334.0
Closing cash 1,464.1 1,838.7 2,296.4 2,334.0 2,394.7
Source: Company, ICICIdirect.com Research
* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 23

 Exhibit 39: Ratio analysis

(Year-end March) CY12 FY14 FY15 FY16E FY17E

Per Share Data (|)
EPS 103.8 160.4 138.8 164.3 192.2
Cash EPS 112.4 175.3 153.5 186.9 220.0
BV 323.6 431.0 502.4 590.1 694.0
Operating profit per share 136.3 207.5 173.6 209.3 245.7

Operating Ratios (%)

EBITDA / Total Operating Income 18.0 17.9 16.9 17.7 18.0
PAT / Total Operating Income 13.7 13.9 13.5 13.9 14.1

Return Ratios (%)

RoE 32.1 37.2 27.6 27.8 27.7
RoCE 39.5 44.7 31.6 31.6 31.4

Valuation Ratios
EV / EBITDA 41.9 27.1 31.8 26.3 22.4
P/E 58.4 37.8 43.7 36.9 31.5
EV / Net Sales 7.5 4.9 5.4 4.8 4.2
Sales / Equity 2.3 2.7 2.0 1.9 1.9
Market Cap / Sales 8.0 5.2 5.9 5.3 4.6
Price to Book Value 18.7 14.1 12.1 10.3 8.7

Turnover Ratios
Asset turnover 2.5 3.1 2.1 1.9 1.9
Debtors Turnover Ratio 28.3 16.3 13.7 16.6 16.6
Creditors Turnover Ratio 6.7 7.2 5.7 5.6 5.6

Solvency Ratios
Debt / Equity - - - - -
Current Ratio 1.7 1.7 2.0 2.0 1.8
Quick Ratio 1.4 1.5 1.7 1.7 1.6
Source: Company, ICICIdirect.com Research
* FY14 numbers are for 15 months

ICICI Securities Ltd | Retail Equity Research Page 24

RATING RATIONALE
ANALYST CERTIFICATION
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
We /I, Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
ratings to our
accurately reflect itsviews
stocks
about theaccording
subject issuer(s) or tosecurities.
their We notional target
also certify that no part ofprice vs. current
our compensation was, is, or market price
will be directly and
or indirectly then
related to thecategorises themor
specific recommendation(s)
view(s) in this report.
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
Terms & conditions and other disclosures:
target price is defined as the analysts' valuation for a stock.
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is
a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general
insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
Buy:
and other>10%/15%
business relationshipfor
with alarge caps/midcaps,
significant percentage of companiesrespectively;
covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
Hold: Up to +/-10%;
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

Sell: -10% or more;

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information
current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice. ICICIdirect.com Research Desk,
ICICI Securities Limited,
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months. 1st Floor, Akruti Trade Centre,
Road
ICICI Securities or its associates might have received any compensation No
from the 7, MIDC,
companies mentioned in the report during the period preceding twelve months from the date of this report for services in
Andheri (East)
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

Mumbai
ICICI Securities or its associates might have received any compensation
in the report in the past twelve months.
for products–or400
services093
other than investment banking or merchant banking or brokerage services from the companies mentioned

research@icicidirect.com
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation
or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.

It is confirmed that Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding
twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.

It is confirmed that Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICI Securities Ltd | Retail Equity Research Page 25

ANALYST CERTIFICATION
We /I, Sanjay Manyal, MBA (Finance) and Parineeta Rajgarhia, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is
a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general
insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information
current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation
or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.

It is confirmed that Sanjay Manyal, MBA (Finance) and Parineeta Rajgarhia, MBA (Finance), Research Analysts of this report have not received any compensation from the companies mentioned in the
report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.

It is confirmed Sanjay Manyal, MBA (Finance) and Parineeta Rajgarhia, MBA (Finance), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICI Securities Ltd | Retail Equity Research Page 26