ICICIdirect.com's report on Cadila Healthcare Technical Outlook
The stock remains in a secular uptrend on larger degree price charts as it continues to move northwards in rising peaks & troughs manner. The stock hit an all-time high of Rs 1760 in November 2014 and, thereafter, entered a sideways corrective phase in the past four months. On Tuesday, the stock registered a fresh breakout above the falling trend line joining the highs since November 2014, signalling a reversal of the secondary correction and start of fresh up move with the larger uptrend.
During the recent corrective decline, the stock bounced back after taking support around Rs 1425 levels which is the confluence of the following:
- The lower band of rising channel in place since May 2014 which highlights sustained buying at elevated levels and at regular intervals
- The value of the rising 21 weeks EMA currently placed at Rs 1534
- The 38.2% retracement of the May 2014 – November 2014 rally (Rs 872 to Rs 1760) is also placed at Rs 1430 level
Fundamental Outlook
Despite being a late entrant in the US market, the company has achieved significant scalability. The US has grown at 40% CAGR in FY09-14 backed by aggressive filings and product launches. Launches of authorised generics on behalf of US companies also contributed to overall growth. US sales now constitute ~41% of the total turnover, up from 14% in FY09. In terms of number of prescriptions, the company figures among the top 10 generic companies in the US. It acquired a company called Nesher in the US to bolster the US portfolio by adding a pipeline of controlled release substances. The US pipeline (cumulative) consists of 254 filed ANDAs, 97 approvals and 69 launches. We expect US sales to grow at a CAGR of 35% to Rs 5356.3 crore between FY14 and FY17E.
With a market share ~4%, Cadila is the third largest player in the domestic formulations market as per AIOCD. The acute-chronic ratio for the company is 68:32. It has a dominating presence in therapies such as CVS, GI and gynaecology. Almost 17% of its portfolio has been covered under the DPCO 2013. Domestic formulations comprise 29% of total revenues. It has launched the first indigenous NCE Lipaglyn (CVS + anti-diabetic) in the Indian market. During FY09-14, this segment has grown at 14% CAGR backed by new launches and acquisition of a company called Biochem. We expect Indian formulations to grow at 14.6% CAGR between FY14 and FY17E to Rs 3711crore on the back of new launches.
Strategy: "Buy Cadila Healthcare in the range of Rs 1595-1625 for a target of Rs 1870.00 with a stop loss below Rs 1490.00 on a closing basis", says ICICIdirect.com research report.
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