Investors are excited about GlaxoSmithKline Plc’s (GSK) plan to split the firm into two entities—pharmaceuticals and consumer healthcare. The consumer healthcare arm has been given heft through its merger with Pfizer Inc.’s consumer business.
GSK’s stock rose 6.7% on the London Stock Exchange on Wednesday. The enthusiasm rubbed off on the shares of its Indian subsidiary, GlaxoSmithKline Pharmaceuticals Ltd, which gained 2.5% on the National Stock Exchange. Investors seem to believe the demerger plans will lead to renewed focus on the pharmaceuticals business, which will help in the long run.
“The proposed transaction also supports GSK’s key priority of strengthening its pharmaceuticals business over the next few years by increasing cash flows,” GSK said in a statement.
The announcement follows GSK’s decision earlier this month to sell Horlicks and a few other consumer healthcare brands to Hindustan Unilever Ltd, and, in turn, buy an oncology-focused company, Tesaro Inc., for approximately $5.1 billion.
But positive changes at the parent company do not automatically trickle down to Indian subsidiaries.
Sales at GSK Pharma in India have slowed as a result of the product rationalization exercise. The local unit stepped up its focus on key brands and more profitable products.
“We will continue to manufacture and sell over 70 brands, we are now focusing our efforts on 20 key brands to drive growth in identified therapy areas,” GSK Pharma said in its September quarter results statement.
“Glaxo’s secondary sales grew by a muted ~1% in the September quarter, as against 9.6% growth in the Indian pharmaceutical market (IPM),” analysts at Motilal Oswal said in a note to clients.
As such, much depends on the country-specific strategy the company adopts.
As far as GSK’s consumer healthcare arm in India goes, it is already in a merger deal with HUL. The terms of the deal include the distribution of GSK’s over-the-counter (OTC) and oral health brands such as Crocin, Eno and Sensodyne. Nothing is expected to change as a result of the merger between the consumer healthcare arms of GSK and Pfizer.
What about Pfizer Inc.’s local unit, Pfizer Ltd, which too sells some over-the-counter products such as the multi-vitamin Becosules and the antacid Gelusil?
Ranjit Kapadia, analyst at Centrum Broking Ltd, says it is not clear how the companies will go about restructuring in India.
It’s likely the Pfizer part of the consumer portfolio will continue to be manufactured and distributed by its Indian arm, even after the global merger.
Perhaps it’s the lack of clarity that explains the muted reaction by investors in Pfizer Ltd—the stock was flat on Wednesday.
Source: Mint