Nomura Financial Advisory and Securities has maintained 'Reduce' on GlaxoSmithKline Pharmaceuticals with target price of Rs 2,151 from Rs 2,305 as against current market price (CMP) of Rs 2,492 with in its report.

Commenting on the investment rationale, Nomura said, ''Impact of the new pricing policy on Glaxo's financials is higher than our estimates. The company reported lowest-ever EBITDA margin at 17.6% for the quarter ending Mar'14. Margins declined by 868bp y-y driven by price cuts and INR depreciation, in our view. These two factors explain the 600-650bp decline in y-y margins, on our assessment. Even adjusted for price cuts, we estimate sales growth was just 3-4% y-y.

We expect margins to remain muted for one more quarter, and improve thereafter from 2HCY14F. The improvement in margins will be driven by: 1) price increases in NLEM products in line with WPI and 2) price increases (of up to 10%) in strong brands like Zantac and Betnovate that have come out of price control These price increases, we estimate can lead to a 350bp increase in EBITDA margin.

We believe the EBITDA improvement is factored in the stock, which currently trades at 41x CY14F and 34x CY15F P/E (EPS: Rs 61.0/73.9). We maintain the fair value range at 25-30x one-year fwd earnings and hence find the stock expensive. Success of its branded generics business is limited and there is limited visibility on inorganic expansion. Vaccine has been a success, but carries medium-term risk of competition.''

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