ICICI Direct recommended hold rating on Cadila Healthcare with a target price of Rs 280 in its research report dated May 30, 2019.
ICICI Direct's research report on Cadila Healthcare
Revenues grew 14.8% YoY to Rs 3732.8 crore (I-direct estimate: Rs 3988.1 crore) mainly due to consolidation of Craft portfolio in wellness segment. US revenues grew 9.3% YoY to Rs 1795.4 crore (I-direct estimate: Rs 2108.7 crore). Domestic formulations grew 2.1% YoY to Rs 902.3 crore (I-direct estimate: Rs 883.8 crore). EBITDA margins contracted 534 bps to 21.4% (I-direct estimate: 23.9%), mainly on account of an adverse product mix. EBITDA de-grew 8% YoY to Rs 800.4 crore (I-direct estimate: Rs 952.4 crore). PAT de-grew 24.2% YoY to Rs 460.1 crore (I-direct estimate: Rs 521 crore). Delta vis-à-vis EBITDA was due to higher interest cost led to consolidation of Craft portfolio.
Despite US launch momentum, the management guidance of low-single digit growth in the US generics seems significantly muted. The Indian formulations business is also going through a major rationalisation drive. The outcome of the same is still some distance away. Thus, the two key segments are likely to witness an overall slowdown for FY20. The third major segment i.e. wellness (post acquisition) will be keenly watched as the company ventures into slightly unchartered territory. Although it is early days to gauge the success, prima facie it looks beneficial from an overall revenue point of view with an India focused FMCG addition in the overall portfolio mix. Overall, the balance sheet expansion and muted growth guidance for the US may weigh on sentiments in the near term. Our new target price is Rs 280 based on 15x FY21E EPS of Rs 18.7.
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