Trend of recovery in acute therapies likely to continue; Add rating retained with revised TP of Rs 1,575
GSKP has announced the sale of its plant at Vemgal, Karnataka to Hetero Labs for a cash consideration of Rs 1.8 bn.
GlaxoSmithKline Pharmaceuticals Limited (GSKP) has announced the sale of its Vemgal plant located in Karnataka to Hetero Labs Ltd for a cash consideration of Rs 1.8 bn. Post discontinuation of Zinetac last year this plant remained unutilised and GSKP had announced a write-off on it. Companys recent financial performance was healthy led by recovery in its key brands and supported by recently launched products (Fluarix Tetra, Menveo and Nucala). We expect this trend in recovery in the acute therapies to continue in the coming quarters. GSKPs exposure only to domestic formulations, strong balance sheet and strong brand equity augurs well. Maintain Add with a revised TP of Rs 1,575/share (earlier: Rs 1,565/share).
Hetero buys Vemgal plant
GSKP has announced the sale of its plant at Vemgal, Karnataka, to Hetero Labs for a cash consideration of Rs 1.8 bn. The transaction is expected to complete by Sep21. GSKP had intended to use ~60% of the manufacturing capability towards Zinetac (ranitidine); however, after the NDMA impurity issue, GSKP stopped its manufacturing and sale of the product in Sep20. This would have led to severe underutilisation of the Vemgal plant which was yet to commercialise. In a prudent decision, GSKP impaired the asset to the tune of Rs 6.4 bn in its Dec20 quarterly results and was exploring all options for the plant including sale.