Reduce Cadila Healthcare; target of Rs 408: Dolat Capital

Dolat Capital's research report on Cadila Healthcare

Cadila’s Q1 results were higher than our estimates driven by lower opex. The 4% revenue beat was driven by higher API sales (HCQ) while India and US were in-line. As has been the trend in the sector, lower opex led to 340 bps beat in EBITDA margins at 22.4% (we saw 19%). Though US sales were lower US$28mn QoQ at US$215mn, higher contribution from Asacol HD aided gross margins at 65% coupled with currency benefit. In US business, we expect sales erosion in gAsacol HD to be more than offset by new launches including transdermals and injectables (guidance of 45 injectable launches in next 2-3 years, including partnered products). While site transfer to Liva facility (first site transfer product approved in May-20) should aid launches, clearance of WL for Moraiya facility is critical. It is in the process of filing complex injectables now which should start contributing from FY23/24 onwards. Injectables currently contribute sales of US$15mn and is expected to scale upto US$150-200mn by FY24E in the US. Cadila guided for net debt reduction of Rs10bn in FY21.

Outlook

Maintain Reduce with a target price of Rs 408 (22x PE vs 20x earlier valuing the R&D initiatives).