Buy Cadila; target of Rs 540: Axis Direct

Axis Direct's research report on Cadila

Q1FY18 EBITDA margin declined 1,000 bps YoY/ 590 bps QoQ to 12.4% on negative operating leverage, as India sales declined 19% YoY. EBITDA margin adj. for GST stood at ~18%. US sales grew 3% QoQ in USD terms aided by full quarter consolidation of Sentynl. We expect its India business (post GST) growth to rebound to mid-teens and US business (post Moraiya clearance) to post 32% CAGR over FY17- 19E, leading to 340 bps/580 bps EBITDA margin expansion to 23.6%/26% in FY18/19.

Outlook

We largely maintain estimates, but upgrade to BUY with a revised TP of Rs 540 (22x FY19 EPS), as we believe it is best positioned (vs. peers) given strong earnings visibility led by monetization of its niche portfolio in India (biosimilar) and US (mesalamine franchise, transdermals).