Topline Securities expects a 36% total return on GlaxoSmithKline Pakistan Limited by December 2026, driven by earnings recovery, margin expansion, and resumed dividend payouts.

Topline has initiated its coverage on GlaxoSmithKline Pakistan Limited (GLAXO) with a BUY and Dec 2026 target price of Rs525/share, providing a total return of 36%, including a dividend yield of 4%.Pakistan Pharma Sector Posts 30% Earnings Growth

The company has underperformed the benchmark index during 2025 by posting an almost flat adjusted return of 2% compared to the KSE100 return of 51%.

Analysts attribute this underperformance to contracting volumetric sales of the company and industry, mainly on the back of rising competition in the industry and halted Afghan exports. In our view, investors have overreacted to these developments, and both the sector and company are due for a re-rating as the base year (2025) is now fully reflective of the volumetric weaknesses and competitive landscape.

Based on topline projections, GLAXO is trading at a 2026E P/E of 11.87x as compared to the 10-year average PE of 17.0x and sector current PE of 18.59x.

Our outlook/thesis is driven by (1) strengthening sector dynamics post deregulation of the nonessential drugs, (2) improving margins amidst lower API prices and price increases, and (3) appealing valuation,” Topline said.

 Strengthening sector dynamics: Post deregulation of non-essential drugs, in 2024, the sector position has further strengthened amidst better availability of drugs across the country, improving profitability of the companies, and focus on new product launches/exports. Govt. targets US$3bn exports within the next three years, with a 2030 target of US$10bn (FY25: US$457mn, up 75% YoY) exports by 2030. Although this seems a very ambitious target, with the right set of measures, Pakistan can post exponential growth in exports.

Improving margins amid falling API and rising selling prices: With the falling prices of active pharmaceutical ingredients (APIs) after normalization of the global supply chain and lower crude oil prices, the domestic pharma players have posted a significant jump in gross margins to an average of 42% in Sep’25 from 36% in Dec 2023. Following the sector dynamics, the gross margins of GLAXO have also increased from 25% in Dec 2023 to 37% in Sep 2025. We expect GLAXO gross margins to hover in the range of 36% – 38% in 2025, 2026, and 2027, respectively.

Earnings to grow at CAGR of 15% during 2026-2030: Analysts expect the company to post EPS of Rs33.71/39.03/44.80 for 2026/2027/2028, suggesting earnings compound annual growth rate (CAGR) of ~15% during 2026-2030. The earnings growth is likely to be backed by elevated gross margins and volumetric growth of ~3-4% assumed in our forecast.

Resumption of dividends amidst improved profitability: The company has resumed its dividend payout pattern after a gap of 2 years and declared Rs10/share dividend in 2024. Along with this, the company also paid a dividend of Rs 5/share in 1H2025. We expect this momentum to continue and assume payout of Rs18/sh and Rs20/sh, generating a dividend yield of 4% and 5% in 2026 and 2027, respectively.

Analysts have valued the company using a blended methodology by applying equal weights to the Discounted Cash Flow (DCF) and historical Price-to-Earnings (P/E) multiple.

Our blended target price stands at Rs525/share. For the DCF, this discount rate assumption is based on a risk-free rate of 11.5%, and a risk premium of 6.0% with a terminal growth rate of 6.0%,” Topline analysts said.

 Key Risks to our investment thesis includes: 1) Lower than expected volumetric growth, 2) higher than expected PKR devaluation against USD, 3) Removal or change in pricing policy, 4) Raw material & API cost volatility, 5) Regulatory delays or change in regulatory regime, and 6) Supply-chain disruptions & import restrictions.