GLAXO: earnings in red

GlaxoSmithKline Pakistan Limited (PSX: GLAXO) has seen its profits fall for 1HCY22 amid rising inflation and cost pressures. The company’s revenues for 1HCY22 increased by 5 percent year-on-year, which was driven by higher prices as well as the companies field engagement, channel penetrations strategies and right sourcing. Revenues in 2QCY22 grew by 8 percent year-on-year. The total turnover of the company also includes intercompany sales to GlaxoSmithKline Consumer Healthcare Pakistan Limited (GSKCH) on account of products manufactured by the GLAXO.

GSKCH demerged from GLAXO in 2015 and started operations as an independent company in 2016 and got listed on PSX in 2017. GLAXO manufactures and markets a wide variety of prescription medicines and vaccines, whereas GSKCH sells over-the-counter medicines and consumer products.

GLAXO’s gross profit was down by 30 percent year-on-year, while gross margins were down from 26 percent in 1HCY21 to 17 percent in 1HCY22. This was primarily due to higher raw material cost as well as depreciating currency. The company has been facing high API cost due to global inflation.

Even though the company’s core costs remained contained, significant jump in finance cost as well as higher tax due to Super Tax imposition dented the earnings for the pharmaceutical MNC. GLAXO’s earnings for 1HCY22 turned negative as a result. Key risks for GLAXO continue to be foreign exchange volatility and high inflation impacting business profitability.