Glaxo Smithkline Pharma

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Morgan Stanley is bullish on the prospects of Glaxo Smithkline Pharma after the meeting with the management. GSK management team guided to early-single-digit sales growth in 2008 and 2009 (Morgan expcts 14-15% EPS growth) and re-iterated its business plan to launch new "exclusive" drugs in 2008. These launches have multi-year visibility, with Cervarix, in-licensed critical-care drug, allermist and Infanrix Hexa planned for 2009, and eltrombopag and synflorix planned for 2010.

Simultaneously, the company has planned new initiatives to grow its matured portfolio - focus on hospitals and rural penetration, re-organization of field force and contract field force for non-promoted drugs.

In addition, the company is planning to launch other "non-exclusive" products (such as Welbutrin XR, Seretide) from parent’s portfolio. It has Rs14.7 billion in cash (Dec '07, 16% of market cap), which gives it significant leeway to fortify portfolio by brand acquisition.

Stock is trading at 18.5x C08 and 16x C09 EPSe. GSK's current valuations are at the lower end of its last 2-3 years’ trading history (see inside) in terms of forward P/E multiple (22-33x), PEG (1.5-3), and sector premium (at par with 40% premium). Morgan has set a price target of Rs 1,280.

If you are holding to the stock, you can continue to HOLD and one can accumulate at lower levels only.

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