Cadila Healthcare may rally upto Rs 913: Daljeet Kohli

Daljeet Kohli of India-Nivesh Securities told CNBC-TV18, "Cadila Healthcare has been actually de-rated in the last two years. There were definite fundamental reasons for that de-rating because the company’s margins had come down from 21 percent to almost 16.5 percent. The reasons were mainly because of domestic pricing policy last year and before that their Moraiya facility was under problems with the US FDA. So, they did not get approvals in time and therefore the margins kept on coming down. Also they acquired a company called Biochem which also resulted in lower margins for the company."

He further added, "Why we have turned bullish just after second quarter numbers is purely because the domestic business has stablised and perhaps the last quarter was the worst quarter. Some impact of this new pricing policy will be negative in third quarter also, but that has stabilised now. So, from here onwards the company will start getting uptick in the domestic margins. On the international front, they have 190 filings with US FDA; 80 are approved and rest are unapproved."

"Again because now Moraiya is out of this US FDA problem. They are likely to get more approvals in next two to six months. This is a story for another 1-1.5 years where we will see the company going back to the normal trajectory of 20 plus margins and that will result in re-rating of the stock," Kohli said.

He further said, "Currently the stock is trading at a very cheap valuation of almost 16 times of FY15 whereas it used to trade around 18-20 times. So, if we see that trajectory coming back I am sure that their valuation will also come back on that line and therefore the stock will have a huge upside potential from here. Currently we are giving a target of Rs 913 and over a period as things progress this will move upwards also."