Buy Cadila Healthcare; target Rs 973: KRChoksey

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Buy Cadila Healthcare; target Rs 973: KRChoksey

KRChoksey is bullish on Cadila Healthcare (CHL) and has recommended buy rating on the stock with a target price of Rs 973 in its November 12, 2011 research report.

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KRChoksey is bullish on Cadila Healthcare (CHL) and has recommended buy rating on the stock with a target price of Rs 973 in its November 12, 2011 research report.

"Cadila Healthcare Ltd (CHL) reported total revenues of Rs 1236cr (for Q2FY12), a growth of 3.8% q-o-q & 10.8% y-o-y. The top-line numbers were weak mainly due to slowdown in Indian & European business. Also the Joint ventures reported weak set of numbers on account of price erosion & competition. Adjusted Operating profit for the quarter stood at Rs 276cr, a growth of 11.2% q-o-q & 9.4% y-o-y. OPM stood at 22.3% which declined by 30bps y-o-y. The marginal dip in margins was mainly due to higher staff cost. Above the EBITDA line, the company reported a forex loss of Rs 39cr Reported PAT stood at Rs 102.6cr down by 40% y-o-y mainly due to higher depreciation & interest expense which was offset by lower tax rate. The company reported forex loss of Rs 51cr below the EBIDTA level. Adjusted Net profit stood at Rs 192cr which grew by 9.7% q-o-q & 14.3% y-o-y. NPM stood at 15.5%, an improvement of 83bps q-o-q & 48bps y-o-y."

"CDL reported weak Topline numbers mainly affected by slowdown in the Indian & European market. Indian market was mainly affected due to the following three reasons. Firstly the overall growth in the Indian market has come down (~13% from 16-17%), thus affecting Cadila's Indian business too. Secondly some of the company's products in the specialty segment have grown below the market rate. Also the company is taking some initiatives to restructure their mass divisions for the Indian market. In the European market, price erosion & huge competition led to the weaker growth. Indian & European business grew by 4.2% & 5.4% y-o-y. At the operating level, the company posted adjusted EBITDA (Adjusted for Forex loss) of Rs 275cr as against Rs 244cr last year. Margins were marginally down by 30bps y-o-y mainly due to higher manpower cost due to Nesher acquisition & start of Sikkim plant production. Reported PAT stood at Rs 102.6cr down by 40% y-o-y mainly due to higher depreciation & interest expense which was offset by lower tax rate. Adjusted PAT (adjusting forex loss of Rs 51cr) stood at Rs 192cr. NPM stood at 15.5%, an improvement of 83bps q-o-q & 48bps y-o-y."

"We believe Cadila's business is widespread across all the segments & has presence in almost all therapies. However, the forex losses are a one off thing, post adjusting which the companys performance for the quarter was neutral. The Indian business did not perform well but that is due to macro concerns rather than firm specific. We believe the long term drivers are in place & maintain our BUY rating on the company with a target price of Rs 973. Currently the company is trading at 14.8x its FY13 EPS of Rs 48.6," says KRChoksey research report.

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