Buy GSK Consumer - Cashing in on growth DNA - Edelweiss Research

GSK Consumer (SKB IN, INR 2,540, Buy)

*GSK Consumer's (GSK) strong brand equity in under-penetrated and high-growth health food drinks (HFD) category renders it a lucrative play in the consumer goods space. Its sustained dominance in the segment amidst intense competition is primarily due to undivided focus on product line, continuous innovation and expansion of distribution network. We are cautiously optimistic about GSK's strategy of venturing into other fast growing food and beverages categories; however, key risk/concern could be its inability to meaningfully scale up new segments like noodles, oats. We initiate coverage with 'BUY'.*

*Brand Horlicks undisputed leader in malted health milk segment* GSK is the undisputed dominant player in the fast-growing under-penetrated domestic malted health drink segment (~70% market share) with *Horlicks, Boost, Maltova* and *Viva*. Its key brands *Horlicks* and *Boost* have posted impressive double digit sales growth (~20% CAGR) over the past five years. New *Horlicks* variants, riding high on the brand, have also found favour with consumers (contributes ~20% to *Horlicks's* top line).

*Innovating and reinvigorating offerings to capture consumer pie* The company, leveraging its strong brand equity, has ventured into biscuits, noodles, and oats in line with its strategy of developing products in the health and wellness segment. It is also expanding distribution in North & West where the presence of GSK is limited and provides a huge growth opportunity (North & West contributes ~15% to sales and likely to reach 20%-25% in the next 4 years. Auxiliary income from the OTC segment is expected to be robust on the back of new launches.

*Outlook and valuations: Upbeat; initiate with 'BUY'* We believe processed food companies will grow faster vis-à-vis non-food consumer companies. Our target for GSK is 24x CY13E EPS (INR119.9) which gives us a value of ~INR2,900. We believe this multiple is justified given the company's leadership in the HFD segment with pricing power, high growth potential and no competition. Hence, we initiate coverage with *'BUY'*. On relative return basis, the stock is rated *'Sector Performer'*.

Source : Equity Bulls

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