Cadila reports adjusted net profit of Rs348.95cr in Q4FY15, Hem Securities initiate 'buy'

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Company Report
Cadila Healthcare Ltd. 6th
June, 2015 BUY
For Private Circulation Only 1 Hem Research
CMP Rs.1798.95
Target Price Rs.2150.00
BSE Code 532321
Market Cap (Rs Cr.) 36842.50
52 Week High/Low 1998.00/915.00
Industry Pharmaceuticals
Face Value Rs.5.00
Shares O/S 20.48 Cr.
EPS 56.59
Book Value 207.59
P/E 31.79
P/B 8.66
Shareholding Pattern
Research Analyst: Vineeta Mahnot
research@hemonline.com
 Zydus Cadila is a fully integrated, global healthcare provider,
with strengths all along the pharmaceutical value chain. With a
core competence in the field of healthcare, Zydus Cadila provides
total healthcare solutions ranging from formulations, active
pharmaceutical ingredients and animal healthcare products to
wellness products.
 The company has registered decent results for the quarter ending
March 2015. The revenues from operations on consolidated basis
grew by about 16% to Rs.2288 crores vs. Rs.1968 cr. in the year
ago quarter while it grew ~4% q-o-q. Operating profit climbed
sharply by 38.3% at Rs.495.87 crores as against Rs.358.55 crores in
the previous year quarter. The adjusted net profit stood at
Rs.348.95 crore for the quarter as against Rs.252.87 crore;
registering a sharp growth of 38%. There has been sharp
improvement on the margins front with operating margin
expanding about 260 bps at 21.80% y-o-y while net profit margin
surged 240 bps at 15.25%.
 US business posted sales of Rs.33.9 billion, up by 56% during the
year. Indian formulations business posted sales of Rs.26.8 billion,
up by 9%. Latin America posted sales of Rs.2.3 billion. European
business posted sales of Rs.3.4 billion during the year. Emerging
markets business grew by 14% and posted sales of Rs.4 billion.
Amongst other business, Zydus Wellness Lt. posted sales of
Rs.4.4 billion, up by 3%. Animal health business posted sales of
Rs.3.1 billion, up by 12% with healthy margins. API business
posted a growth of 6% at sales of Rs.3.7 billion.
Valuation
With strong traction in the key US market, robust product pipeline
and approvals thereby, product launches and increasing global
presence are the key growth drivers for Cadila Healthcare. We
believe the company is trading at an attractive valuation at 25.13x and
20.16x of FY16EPS of Rs.71.58 and FY17EPS of Rs.89.23. We initiate a
‘BUY’ on the stock with a target price of Rs.2150 (appreciation of
about 20%) with the medium to long term investment horizon.

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Business Details
Zydus Cadila is a fully integrated, global healthcare provider, with strengths all along the pharmaceutical value chain.
With a core competence in the field of healthcare, Zydus Cadila provides total healthcare solutions ranging from
formulations, active pharmaceutical ingredients and animal healthcare products to wellness products. Over the last
five decades, it has been developing and manufacturing pharmaceutical products and selling and distributing these in
over 50 countries around the world. An integrated healthcare solutions provider with pharmaceutical product basket,
it caters to over 45 therapeutic areas that include cardiovascular, gastrointestinal, analgesics, haematinics, anti-
infectives and antibiotics, respiratory agents, antidiabetics and immunologicals.
CHL operates eight manufacturing facilities out of
which four formulation plants are located at
Ahmedabad, Goa, Baddi and Sikkim. The company
has state-of-the-art manufacturing facilities
conforming to the most stringent international cGMP
norms vis-'-vis WHO-GMP, WHO, Geneva (GDF site
for Anti- TB), TGA Australia (PIC/S), USFDA, UK-
MHRA, MCC-South Africa, ISO 9001 and ISO 14001.
The Zydus Cadila Group operates in four continents
spread across USA, Europe, Japan, Brazil, South Africa
and 25 other emerging markets. The company has in-
licensing alliances with global multinationals such as
Schering AG, Boehringer Ingelheim, Viatris, etc.
Business divisions of the company are-
Formulations- Zydus is one of the oldest players in the Indian formulations market for several years. There has been a
continuous thrust on improving market presence and market share. It has expanded its portfolio by entering newer
therapeutic areas organically or through acquisitions, aggressively launching new products with the first mover
advantage in several products, gradually shifting its focus from acute segments to fast growing and sustainable
chronic segments and enhancing market penetration through field force expansion. The Company is one of the leading
player that caters to various therapeutic areas such as cardiovascular, gastrointestinal, respiratory, pain management,
CNS, anti-infectives, oncology, neurosciences, dermatology and nephrology segments. CHL manufactures its
formulations in various forms such as oral, vaccines and inhalers. The company has portfolio of 200 products and
created brands like Aten, Ocid, Deriphyllin, Pantodac, Atorva, Nucoxia and Mifegest, to name a few.
Consumer product division- This is a healthcare division that has brands like Sugar Free, Nutralite and Everyuth. Its
sugar-free has range of sugar substitutes; Nutralite is cholesterol-free bread spread and Everyuth has range of skincare
products.

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Firm growth guidance
CDH management expects to clock good double-digit growth in the Domestic business starting from the next quarter.
It firmly aims to cross Rs.10000 crores mark with EBIDTA margin at around 21%. New technologies such as
trnasdermals, biosimilars and vaccines are also expected to contribute going forward considering the sizeable
investments done on them. It plans to file more than 40 filings in the US in the coming year with almost 20 approvals
through the globe. Research and Development expenses are expected to continue at stay around 6-7% of sales with
about three-fourths expenditure towards Generic and the remaining to Novel initiatives. Capex is expected to be
around Rs.550 crores in the area of API and Formulations, a new injectable facility plus additional manufacturing
capabilities. Tax rate is expected to stay at around 17%.
US business seeing better traction
US business has been the key driver of such a strong growth
which clocked in the recent financial year ended; it crossed
$500 million mark in sales for the first time. Thereby,
contributing the largest chunk to the total sales of the
company. Cadila continues to be the eighth largest generic
company in terms of prescription in the US generic market.
The company files 38 ANDAs with the USFDA taking the
cumulative ANDA filings to 260 and received approval of 8
ANDAs during the year taking cumulative approvals to 99. It
also launched 9 new products in the US during the year.

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Strong growth across geographies through product filings and launches
US business has been the strongest contributor to the sharp rise in sales for the company with crossing $500 million
mark. India Formulations business, the second largest contributor to the revenue, faced a few challenges on account of
lower sales growth of few pillar brands, discontinuance of a business of a few in-license products and NPPA’s order to
reduce prices of cardiology and diabetology drugs, there by impacting the primary sales. The company launched over
55 products including line extensions in India during the year, of which 19 were for the first time in India. These
included the launch of Exemptia, the first Biosimilar of Adalimumab, to be approved anywhere in the world. It also
launched a new strategic business unit- Zydus Biologics- to maximize the market share in the emerging and high
potential business area of biologics. Altogether, India posted growth in line with the market growth. In Latin America,
CDH filed 10 new products dossiers with the Brazilian regulatory authority ANVISA during the year. In Mexico, it
launched 7 new products during the year taking the cumulative number of branches to 15. It filed 7 new products
dossiers with the Mexican Regulatory Authority COFEPRIS, taking the cumulative filings to 43 and received approval
for 14 products, taking the cumulative number of approvals to 24. The company launched 5 new products in France,
including 2 Day-1 and 4 from India and 12 new products in Spain, including 1 Day-1 and 9 from India. It filed 16 new
products dossiers, taking our cumulative filings to 191 and received approvals for 13 new products, taking our
cumulative approvals to 151 for the European market during the year. 20 new products were launched in the focused
emerging markets during the year. Further, the company filed 10 DMFs with the USFDA, taking the cumulative
number of DMF filings to 116.
Sound financials
Cadila has registered very sharp numbers for the financial year ended March 2015. Total income from operations
stood at Rs.8651.34crores from Rs.7224 crores; depicting sharp growth of 19.76%. US business was the key driver of
growth in the top line. Operating profit registered excellent growth of ~46% at Rs.1755.71 crores form Rs. 1200.10
crores. Similarly, adjusted net profit too climbed more than 40% at Rs.1159 crores form Rs.821 crores. The company
maintained its leadership positions in the Cardiology, Gynecology, and Respiratory therapy, while in the
Gastrointestinal and Dermaceutical space, it continued to remain amongst the top five players in the market. Capex
during the year stood at close to Rs.400 crores. On the margins front, there is a sharp expansion for the company as
compared to last year.

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Consolidated Profit & Loss Account
Rs. Crore
Particulars FY13 FY14 FY15 FY16E FY17E
Net sales 6357.70 7224.00 8651.34 10381.61 12302.21
Growth 13.63% 19.76% 20.00% 18.50%
Expenditure 5232.60 6023.90 6895.63 8232.62 9694.14
EBITDA 1125.10 1200.10 1755.71 2148.99 2608.07
Growth 6.67% 46.30% 22.40% 21.36%
EBITDA margin (%) 17.70% 16.61% 20.29% 20.70% 21.20%
Other income 37.00 50.70 55.37 62.29 73.81
Depreciation & Amortisation 184.70 201.20 287.25 332.21 369.07
EBIT 977.40 1049.60 1523.83 1879.07 2312.81
EBIT margin 15.37% 14.53% 17.61% 18.10% 18.80%
Interest 168.70 90.20 67.86 58.40 49.61
PBT 808.70 959.40 1455.97 1820.67 2263.21
Tax 118.80 106.00 259.42 309.51 384.75
PAT 689.90 853.40 1196.55 1511.16 1878.46
Share of Associates 0.00 0.00 0.00 0.00 0.00
Minority Interest 36.40 32.60 37.66 45.19 51.07
Adjusted PAT 653.50 820.80 1158.89 1465.97 1827.40
Growth 25.60 41.19 26.50 24.65
Net Profit margin (%) 10.28 11.36 13.40 14.12 14.85
Exceptional item 0.00 17.20 10.44 0.00 0.00
Reported PAT 653.50 803.60 1148.45 1465.97 1827.40
Equity Capital 102.40 102.40 102.37 102.37 102.37
Equity Shares 20.48 20.48 20.48 20.48 20.48
Adjusted EPS 31.91 40.08 56.59 71.58 89.23
Ratios
Particulars FY13 FY14 FY15 FY16E FY17E
Return on Equity 22.19 23.87 27.26 27.10 26.60
Return on Capital employed 16.67 17.10 23.14 24.81 26.12
Debt/Equity 0.99 0.79 0.55 0.40 0.29
Asset turnover 0.86 0.90 0.96 0.99 0.97
Current Ratio 2.71 2.42 2.12 2.08 2.05
Book value per share 143.77 167.92 207.59 264.18 335.40

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Balance Sheet
Rs. Crore
Particulars FY13 FY14 FY15 FY16E FY17E
Equity Share Capital 102.40 102.40 102.37 102.37 102.37
Share application money 0.00 0.00 0.00 0.00 0.00
Reserves & Surplus 2842.10 3336.60 4149.17 5,307.94 6,766.70
Shareholders’ funds 2944.50 3439.00 4251.54 5410.31 6869.07
Borrowings 2917.80 2700.40 2333.97 2162.84 1984.23
Deferred tax liability 100.50 96.10 58.56 58.56 58.56
Minority Interest 119.30 144.30 168.89 173.96 182.65
Sources of funds 6082.10 6379.80 6812.96 7805.66 9094.51
Gross block 4,376.20 4,664.00 5,977.56 6921.07 7688.88
Accumulated Depreciation 1,350.60 1,540.20 1,827.45 2,159.66 2,528.67
Net block 3025.60 3123.80 4150.11 4761.41 5160.21
Capital WIP 735.60 891.50 0.00 0.00 0.00
Investments 114.50 86.60 154.40 169.34 232.39
Deffered tax assets 0.00 0.00 0.00 0.00 0.00
Inventories 1,213.60 1,367.50 1,535.68 1,716.43 2,276.68
Sundry debtors 955.10 1,133.70 1,588.39 1,937.90 2,529.64
Cash and bank balance 583.80 548.80 669.89 775.16 975.72
Other current assets 66.90 68.60 70.71 110.74 144.55
Loans and advances 679.10 766.00 877.96 996.63 1,300.96
Total current assets 3498.50 3884.60 4742.63 5536.86 7227.55
Current liabilities and
provisions 1,292.10 1,606.70 2,234.18 2,661.95 3,525.63
Net current assets 2206.40 2277.90 2508.45 2874.91 3701.91
Misc exp 0.00 0.00 0.00 0.00 0.00
Uses of funds 6,082.10 6,379.80 6,812.96 7,805.66 9,094.51

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Consolidated Quarterly Financial Highlights
Rs. Crore
Particulars Q4FY15 Q4FY14 Q3FY15 YoY% QoQ%
Revenues 2288.23 1968.50 2204.99 16.24 3.78
Expenditures 1792.36 1609.95 1742.25 11.33 2.88
Operating Profit 495.87 358.55 462.74 38.30 7.16
Adjusted Net Profit 348.95 252.87 292.83 38.00 19.16
Extraordinary item (1.43) 13.68 10.92 ---- ----
Reported PAT 350.38 239.19 281.91 46.49 24.29
OPM% 21.80 18.21 20.99 359bps 81bps
NPM % 15.25 12.85 13.28 240bps 197bps
Adjusted EPS 17.04 12.35 14.30 37.98 19.16
Past Price movement of the stock
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Disclosure of Interest Statement Company Name
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2. Hem & its Group Company Ownership of the Stock Yes
3. Hem & its Group Companies’ Director Ownership of the Stock Yes
4. Broking relationship with company covered No