Buy Cadila Healthcare; target of Rs 510: ICICI Direct

ICICI Direct's report on Cadila HealthcareRevenues grew 16.7% YoY to Rs 2459.5 crore mainly on the back of 25.2% YoY growth in the US formulations business to Rs 1003.8 crore (I-direct estimate: Rs 997.4 crore). Domestic formulations grew 10.4% to Rs 751.3 crore (I-direct estimates: Rs 748.9 crore)EBITDA margins improved 529 bps to 25.3% due to better gross margins and lower-than-expected other expenditure. Gross margins improved from 61% to 67.2% (I-direct estimates: 65.5%). EBITDA grew 47.6% YoY to Rs 621.3 crore (I-direct estimate: Rs 536.8 crore)PAT grew 40.6% YoY to Rs 390.9 crore (I-direct estimate: Rs 374.8 crore) boosted mainly by a strong operational performance. A higher-than-expected tax rate led to the lower net profit margins US growth, Moraiya resolution main catalysts; maintain BUYQ2 results were once again a US driven story for the company although some other segments also chipped in. It is witnessing steep US growth trajectory on the back of aggressive filings and launches in the last few quarters. What is now striking is the quality of earnings in the US, which has shown a marked improvement in the last few quarters as reflected by improvement in EBITDA margins. The filing to approval gap is also one of the highest among peers, assuring of consistency the US traction. Going ahead, early resolution of Moraiya observations will also hold key. Our revised target price is Rs 510, based on 22x FY18E EPS of Rs 23.2 as we roll forward our estimates to incorporate FY18 estimates, says ICICI Direct research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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