Hold Cadila Healthcare; target of Rs 315: Edelweiss

Edelweiss research report on Cadila HealthcareCadila Healthcare’s (CDH) Q1FY17 earnings were below expectations. Despite pre-EBITDA forex gain of INR 468mn, revenue, EBITDA and PAT were down 2%, 9% and 23% YoY, respectively, as HCQS benefit withered away. Domestic market growth was muted at 6% due to 9% price cut in 30% of portfolio. Going forward, while there will be some cushion from Asacol HD’s AG launch and possible launches from Nesher, we believe it will be challenging for CDH’s earnings to grow in FY17. At CMP, the stock trades at 20x FY18E EPS, leaving limited upside even if Warning Letter clearance is received, but niche approvals are not. Maintain ‘HOLD’.

 

Unless niche US approvals kick in, business will remain under pressure. We believe this is critical for earnings to be revised upwards as none of the other businesses are performing. We cut FY17/18E EPS 15%/10%, also factoring Ind-AS considerations. We maintain ‘HOLD/SP’ with revised TP of INR 315 (INR 350 earlier) (18x FY18E EPS).