Hold Cadila Healthcare; target of Rs 720: Emkay

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Hold Cadila Healthcare; target of Rs 720: Emkay

Emkay Global Financial Services has recommended hold rating on Cadila Healthcare with a target of Rs 720, in its February 7, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on Cadila Healthcare with a target of Rs 720, in its February 7, 2012 research report.

"Cadila Healthcare, domestic formulation business (contributed 34%) grew by 18% to Rs4.69bn due to acquisition of Biochem. Excluding Biochem, organic growth was 12% YoY. Consumer business (contributed 6%) de-grew by 12% due to increase in competitive pressures from MNCs on key brands - Sugar Free, EverYuth and Nutralite. US business (contributes 25%) grew 23% YoY and flat QoQ in USD terms led by Nesher (contributed USD8mn). Ex-Nesher, US business grew by 8% YoY. Gross margins declined 190bps YoY and 140bps QoQ to 66.6% and EBIDTA margins declined 288bps bps YoY and 269bps QoQ to 19.1% due to lower margins in acquired business, higher R&D cost and pressure in Wellness business. Adjusted for forex loss of Rs342mn, PAT stood at Rs1.77bn (up 9% YoY)."

"Management has guided for 15-18% growth in domestic business in FY13 on back of Biochem acquisition and new product launches. The company has launched 23 products in Q2FY12 and 15 in Q3FY12 out of which 7 were first to launch in India. Nesher's acquisition to contribute USD30mn and expected to turns profitable from FY13. The company expects to achieve USD100 mn in revenues from 6 launches over next 3 years. USFDA issues and lack of clarity on future ANDA launches remains an overhang on the stock performance."

"We expect Cadila to report 11% revenue growth in FY12 and 17% growth in FY13. We expect EBIDTA margins to move from 21.5% in FY11 to 20.8% in FY13. Earnings will grow by 10% CAGR over FY11-13E. We value the company at 18x FY13 EPS with a target price of Rs720 and Hold rating. At current price, the stock trades at 17x FY12E EPS of Rs36 and 15X FY13E EPS of 45," says Emkay Global Financial Services research report.  

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