GSK Consumer

Investors seeking a defensive option for their portfolio can consider adding the GlaxoSmithkline Consumer Healthcare (GSK Consumer) stock.

Despite the company's strong volume-driven growth, dominant market share and focus on promising FMCG segments, the stock trades at a discounted valuation.

The current market price of Rs 1,496 discounts estimated 2011 earnings by about 18 times (Nestle and Dabur India trade at 24-26 times).

In a scenario where players in large FMCGs such as soaps and laundry are facing competitive pressures, GSK Consumer appears better placed due to its presence in under-penetrated FMCGs with limited competition.

The company closed Calendar 2009 with sales growth of 25 per cent, managed almost evenly across the four quarters, with matching profit growth.

This was underpinned by strong volumes, which grew 15 per cent plus in both Boost and Horlicks and 30 per cent in the biscuits category in the December quarter. Continuing impetus to rural spending may aid prospects, given that both of its product segments – malted food drinks and foods – have room to expand rural reach.

Several years of operating in just one product segment had kept the stock's valuations low, but a frenetic pace of new launches over the past year (Horlicks Lite, Actigrow, ProHeight and recently Foodles) promises to remedy this.

Though rising prices of inputs (malted barley, milk), as also rising ad spend pose a threat to margins, a 61-per-cent market share in its key segment gives the company considerable pricing power.

via BL