Glaxo Strengthens Indian Presence – Analyst Blog

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GlaxoSmithKline (GSK) recently increased its holding in its consumer healthcare subsidiary in India, GlaxoSmithKline Consumer Healthcare Ltd, from 43.2% to up to 72.5%. The transaction is valued at approximately £568 million. The final payment for the shares is expected to be made on or before Feb 13, 2013.

We are positive on the deal, which is in line with the company’s plans to expand its Consumer Healthcare segment in India. The Indian consumer healthcare subsidiary generated revenues of approximately £380 million in 2011 and demonstrated a compound annual growth rate (CAGR) of 19% per annum in the last 5 years.

The deal will not have any impact on earnings in the first year but will be accretive thereafter. Glaxo plans to fund the deal with its existing cash resources.

We note that several products in Glaxo's portfolio are facing declining sales due to intense generic competition. We expect the company's top line and gross margins to remain under pressure in the coming quarters. EU pricing pressure will continue to affect sales as well.

Glaxo is aiming to maximize the potential return from its pipeline. The company is looking toward deals and acquisitions to drive growth. Further, the company is focusing on increasing the rights on its partnered products and promising pipeline candidates, so that it stands to benefit more from their success.

Apart from this, Glaxo continues to progress on its cost-cutting initiative, which should help reduce the impact of increasing generic competition over the next few years and boost earnings.

Glaxo carries a Zacks Rank #4 (Sell) in the short run. Large-cap pharma companies that currently look better-positioned include Eli Lilly (LLY), Bayer (BAYRY) and Sanofi (SNY). All these three companies carry a Zacks Rank #2 (Buy).
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