Prabhudas Lilladher recommended Hold rating on Cadila Healthcare with a target price of Rs 220 in its research report dated November 13, 2019.
Prabhudas Lilladher's research report on Cadila Healthcare
CDH sales declined 4% QoQ in Q2FY20, while EBITDA and margin were also lower 11% and 150 bps QoQ. EBITDA margin declined on account of higher SG&A expenses attributed to seasonality of India formulations and consumer businesses. PAT was impacted by a one-time impairment charge of Rs2.7bn due to the entry of new generic player in its US specialty product Levorphanol. Adjusted to one-off PAT would have increased by another Rs3bn. India business declined 12% QoQ attributed to weak sales of Consumer Healthcare segment. The India formulations, API, and animal healthcare business grew 3%, 52% and 12% QoQ.US formulations grew 6% while base business grew 11% QoQ on account of market share gain on exiting products, new launches and benefits of shortage in Losartan. Europe business declined 14% QoQ. There could be possibility of higher charge backs that could lead to reduce net realisation of core US sales in Q2FY19E mainly from competitive products such as Levorphanol and gLialda. CDH trades at PER of 12x (FY20E) and 11x (FY21E). With higher leverage and volatile US business with many one-off opportunties, we expect drag in valuation to continue in H2FY20E and FY21E.
We downgrad our recommendation to 'Hold' from 'Accumulate' and decreease TP to Rs220 (PE 10x FY21E) from Rs266.
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