Accumulate Cadila Health; target Rs 818: Sushil Finance

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Accumulate Cadila Health; target Rs 818: Sushil Finance

Sushil Finance has recommended an accumulate rating on Cadila Healthcare with a revised target price of Rs 818 in its report dated November 21, 2011.

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Sushil Finance has recommended an accumulate rating on Cadila Healthcare with a revised target price of Rs 818 in its report dated November 21, 2011.

"Cadila Healthcare Limited. (Cadila) has reported dismayed set of numbers for the second quarter running after a strong performance in FY11. The company has recorded revenues of Rs. 12364 mn with a growth of 10.7%, with PAT at Rs. 1027 mn, a de-growth of 40%. Revenues grew by 10.7% YoY from Rs. 11167 mn in Q2FY11 to Rs. 12364 mn in Q2FY12. The company registered a sluggish growth in its domestic business (growth of 7.5%) as compared to a growth of 19.2% in its export business."

"Domestic formulation business registered a meager growth of 6.6% from Rs. 4409 mn in Q2FY11 to Rs. 4700 mn in Q2FY12. The slower growth in the domestic market was attributed to the underperformance of some of the company's top drugs, slowdown in the overall domestic market and inventory correction for a few products in order to check receivables."

"Export formulations business registered a growth of 22.3% to Rs. 4893 mn on the back of a strong growth witnessed in select geographies mainly US (36%), Japan (22%) and Brazil (12%). However, the company witnessed a sluggish growth of 5% in Europe formulations and a 9.5% de-growth in the emerging market formulations due to political instability in a few countries like Sudan and Algeria where the company has stopped supplying stocks. On the export API front, the company saw a 30% decline in revenues mainly on account of price erosion in clopidogrel API & volume contraction in Europe."

"Cadila registered a 2.0% growth in its JV business at Rs. 750 mn with the major contributor being the Hospira JV. The quarter also saw revenues from the Bayer JV."

"Cadila's vision of tripling its business by FY15 is facing some early headwinds in the wake of sluggish growth in the domestic market coupled with increasing debt from Rs. 10.9 bn (FY11) to Rs. 19.9 bn (Q2FY12). However, with the USFDA approval of its Baddi facility (additional product approvals expected from the facility in the near term), we expect Cadila's future growth to be led by increased traction in its international businesses (US -Nesher gaining traction and Brazil), a ramp-up in supplies to Hospira and a sustained doubledigit growth in its consumer business."

"We however believe the stock performance may remain muted in the near term on the back of lower sales growth momentum and the warning letter overhang on its Injectibles facility. In view of these short term concerns we have revised our estimates for FY12E and FY13E and recommend an ACCUMULATE on the stock with a revised target price of Rs. 818 (based on 20x its FY13E EPS of Rs. 40.9). It is currently trading at a P/E of 17.5x its FY13E EPS of Rs. 40.9, says Sushil Finance research report.

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To read the full report click on the attachment