Buy Cadila Healthcare; target of Rs 490: Motilal Oswal

Cadila Healthcare (CDH) delivered lower-than-expected 3QFY22 earnings, weighed by lower Domestic Formulation (DF) / US / EM sales and increased operational costs. CDH continues its effort to build the product pipeline and niche launches (including g-Revlimid) for the US market. Even innovation-led products are advancing well in the respective clinical stages of development.

Outlook

We cut our EPS estimates by 2%/4%/4% for FY22E/FY23E/FY24E and reduce PE multiple to 21x (from 25x earlier) to factor in a) moderate growth in the US business over the medium term and b) the weaker outlook on the vaccine opportunity given the easing of the COVID situation. Accordingly, we arrive at TP of INR490 on a 12M forward earnings basis. It is trading at attractive valuations of 18.5x/17x in FY23E/FY24E. Also, potential levers such as certain limited-competition product launches and the favorable outcome of clinical trials related to NCE products are yet to be captured in the estimates. Hence, we maintain a BUY rating on the stock.

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