Cadila ru2 qfy2011-191010

2QFY2011 Result Update | Pharmaceutical
October 19, 2010

Cadila Healthcare NEUTRAL
CMP `680
Performance Highlights Target Price -
Y/E March (` cr) 2QFY2011 1QFY2011 % chg (qoq) 2QFY2010 % chg (yoy) Investment Period -
Net sales 1,106 1,055 4.9 913 21.2
Stock Info
Other income 14 82 (82.6) 37 (61.9)
Sector Pharmaceutical
Gross profit 764 729 4.8 611 25.2
Market Cap (Rs cr) 13,898
Operating profit 234 219 7.2 172 36.0
Net profit 171 200 (14.4) 132 29.5
Beta 0.5
52 Week High / Low 725/355
Source: Company, Angel Research
Avg. Daily Volume 23670
Cadila Healthcare (Cadila) continued its strong performance and reported good Face Value (Rs) 5
set of numbers for 2QFY2011, driven by the domestic, US and Brazil formulation BSE Sensex 19,983
business. For FY2011, the company maintained its guidance of US $1bn on the Nifty 6,027
top-line front, implying 27–28% yoy growth with OPM improvement of 100bp to Reuters Code CADI.BO
20.5% from 19.5% in FY2010. The stock has outperformed the BSE healthcare Bloomberg Code CDH@IN
index by 42% over last one year and is trading at 22.2x FY2011E and 17.2x
FY2012E earnings. We maintain Neutral on the stock at these levels.
Shareholding Pattern (%)
Results ahead of expectations: Cadila reported net sales of `1,106cr, up 21.2%
Promoters 74.8
yoy and ahead of our estimates of `1,067cr, driven by the domestic formulation,
MF / Banks / Indian Fls 14.9
US and Brazil formulation business. On the domestic front, net sales grew by
FII / NRIs / OCBs 5.1
strong 18.6% to `467cr (`394cr) on the back of traction in the CVS and
respiratory therapeutic segments. The US business grew by a stellar 40.8% to Indian Public / Others 5.2

`226cr (`160cr), driven by expansion in the market share of existing products.
The company reported OPM of 21.2% (18.9%), which was ahead of our estimates
Abs. (%) 3m 1yr 3yr
on the back of favourable product mix and lower SG&A expenses. As a result, net
Sensex 11.5 15.3 13.8
profit grew by 29.5% to `171cr.
Cadila 7.4 84.5 345.0
Outlook and valuation: We expect net sales to post a 19.4% CAGR to `5,100cr
and EPS to post a 26.6% CAGR to `39.6 over FY2010–12E. We maintain Neutral
on the stock at these levels.

Key Financials (Consolidated)
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E
Net sales 2,862 3,574 4,308 5,100
% chg 26.3 24.9 20.5 18.4
Net profit 303 505 626 810
% chg 17.6 66.8 23.9 29.4
EPS 14.8 24.7 30.6 39.6
EBITDA margin (%) 18.9 19.5 20.1 21.0
P/E (x) 45.9 27.5 22.2 17.2 Sarabjit Kour Nangra
RoE (%) 29.1 37.0 34.8 34.7 +91 22 4040 3800 Ext: 343
RoCE (%) 18.4 20.4 23.4 26.0 sarabjit@angelbroking.com
P/BV (x) 11.7 8.9 6.8 5.3
Sushant Dalmia, CFA
EV/Sales (x) 5.2 4.2 3.4 2.8
+91 22 4040 3800 Ext: 320
EV/EBITDA (x) 27.6 21.4 16.9 13.4 sushant.dalmia@angelbroking.com
Source: Company, Angel Research. Note: Our FY2011 estimates do not include upfront payment
from Abbott Labs.

Please refer to important disclosures at the end of this report 1

Cadila Healthcare | 2QFY2011 Result Update

Exhibit 1: 2QFY2011 performance (consolidated)
Y/E March (` cr) 2QFY2011 1QFY2011 % chg (qoq) 2QFY2010 % chg (yoy) 1HFY2011 1HFY2010 % chg
Net sales 1,106 1055 4.9 913 21.2 2,161 1,793 20.6
Other income 14 82 (82.6) 37 (61.9) 95.8 64.8 47.9
Total income 1,121 1,137 950 18.0 2,257 1,858 21.5
Gross profit 764 729 4.8 611 25.2 1,481 1,208 22.6
Gross margin (%) 69.1 69.1 66.9 68.5 67.4
Operating profit 234 219 7.2 172.5 36.0 453.1 353.0 28.4
Operating margin (%) 21.2 20.7 18.9 21.0 19.7
Financial cost 16 32 (49.2) 23 (30.5) 48 47 0.3
Depreciation 30 31 (3.0) 31 (2.2) 62 61 1.8
PBT 202 237 (14.8) 156 30.0 440 310 42.0
Provision for taxation 25 34 (24.8) 18 44.6 59 42 41.5
PAT before extra-ordinary item 177 204 (13.1) 138 28.1 380 268 42.1
Exceptional 0 0 0 0 4 (100.0)
Minority 6 4 49.8 4 71.1 10 8
PAT after extra-ordinary item & MI 171 200 (14.4) 132 29.5 370 257 44.3
EPS (`) 8.4 9.8 6.5 29.5 18.1 12.6

Exhibit 2: 2QFY2011- Actual v/s Angel estimates
(` cr) Actual Estimates Variance (%)
Net sales 1,106 1,067 3.7
Other income 14 13 9.4
Operating profit 234 219 7.1
Tax 25 23 10.4
Net profit 171 156 9.5

Revenue up 21%, beats estimates: Cadila reported net sales of `1,106cr (`913cr),
up 21.2% and ahead of our estimates of `1,067cr, driven by the domestic
formulation, US and Brazil formulation business.

On the export front, the US business grew by a stellar 40.8% to `226cr (`160cr),
driven by expansion in the market share of existing products. We expect the
company to continue its strong market share (>20%) in the generic version of
Flomax. Cadila filed two ANDAs during the quarter, taking its cumulative ANDA
pending approvals to 115, and received approval for two ANDAs in the US, taking
total approval to 58. The company expects to launch 8–10 products in the US in
FY2011. Sales in Europe grew by 11.4% yoy to `59cr (`53cr). Further, emerging
markets grew by healthy 43% to `47cr (`33cr). While Brazil grew by stellar 26.7%
to `58cr (`46cr), as the company 1) was able to address supply constraints
witnessed in the last quarter and 2) received product approvals during the quarter.
On the API front, sales declined by 3.6% to `80cr (`83cr).

October 19, 2010 2


Exhibit 3: Sales trend in the US and Europe
250 226
223

200 178 185
160
150
104
100
63 59
53 54
50

0
2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011
US Europe


On the domestic front, net sales grew strongly by 18.6% to `467cr (`394cr) on the
back of traction in the CVS and respiratory therapeutic segments. Cadila launched
20 new products, including line extensions, during the quarter. The company is
registering 80K–100K doses/month sales of H1N1 vaccine. The company now has
a strong field force of 4,000MR. The company expects strong traction on the
domestic front to continue during FY2011. On the consumer division front, the
company continued to post healthy growth of 23.2% yoy to `80cr (`65cr) during
the quarter.

Exhibit 4: Sales trend in domestic formulation and consumer division
500 467
436
394
400 364
316
300
(` cr)

200

75 87 80
100 65 63

0
Domestic Formulation Consumer division


On the CRAMS front, the Nycomed joint venture (JV) posted sales of `16cr (`21cr),
down 21.3% yoy. Cadila has commissioned a new API facility in Navi Mumbai.
The company has indicated that it will commence supplying 14 APIs
(8 under the Nycomed JV and 6 under Cadila by the end of 1QFY2012). While the
Hospira JV contributed `31cr (`20cr), up 53.7%, the Hospira JV is likely to witness
traction from the potential launch of docetaxel in US by Hospira in November
2010.

October 19, 2010 3


Exhibit 5: Sales trend in the CRAMS segment
35
31
30

25 22
21 20
20 19 18

(` cr)
15 16
14
15

10 7

5

0
Nycomed Hospira


OPM expands on the back of favourable product mix: Cadila reported OPM of
21.2% (18.9%) on the back of a 108bp expansion in gross margin and lower
SG&A expenses. However, R&D expenses increased by 45.8% to `69cr (`47cr) due
to increased clinical trials during the quarter.

Exhibit 6: OPM trend
21.5

21.0
21.0
20.5 20.7
20.0
(%)

19.5
19.4
19.0
19.1
18.9
18.5

18.0

17.5


Net profit increased by healthy 30%: Net profit for the quarter came in at `171cr
(`132cr), up 29.5%, driven by top-line growth and OPM expansion. Further, the
financial cost during the quarter came down by 30.5% to `16cr (`23cr) on the
back of lower financial cost.

October 19, 2010 4


Exhibit 7: Net profit trend
250

200
200
171

( ` cr)
150 132 130
119

100

50

0


Concall takeaways

For FY2011, the company reiterated top-line growth of 27–28% to US $1bn
(`4,600cr), with OPM improvement of 100bp from 19.5% in FY2010 to 20.5%
in FY2011. Going ahead, management expects momentum in the domestic
formulation segment to continue.

On the forex front, Cadila has negligible cover on the receivable front
(US $3mn) and does not intend to increase the same. Management has given
capex guidance of `375cr for FY2011 and FY2012. Tax rate for FY2011 is
expected in the 12–15% range.

Management expects revenue from the Abbott deal to flow in the next
15–18months.

October 19, 2010 5


Recommendation rationale
Strong domestic portfolio: Cadila is the fifth largest player in the domestic market, with
sales of about `1,445cr in FY2010, contributing 40% to the top line. The company
enjoys its leadership position in the CVS, GI, women healthcare and respiratory
segments, with sales force of 4,000MR. The company, on an aggressive front, launched
more than 60 new products, including line extensions in FY2010. During FY2008–10,
the company reported a 10.8% CAGR in the top line of the domestic formulation
business. Going forward, management expects the segment to grow at above-industry
average of 12–14% on the back of new product launches and field force expansion.
Further, the company has a strong consumer division through its stake in Zydus
Wellness (which has premium brands under its umbrella, viz. Sugarfree, Everyuth and
Nutralite), which reported top line of `268cr in FY2010.

Exports on a strong footing: Cadila has a two-fold focus on exports (wherein it is
targeting the developed as well as the emerging markets), which contributed around
48% to the top line in FY2010. The company has developed a formidable presence in
the developed markets of the U.S., Europe (France and Spain) and Japan. In the U.S.,
the company achieved critical scale of US $140mn on the sales front in FY2010, with
40% of its products commanding a market share of more than 20%. This was primarily
driven by market share gains in the U.S. as some key competitors had manufacturing
constraints due to the USFDA issue. In the emerging markets, the company is
aggressively targeting Brazil and the CIS region. Going forward, the company’s growth
in Europe would be driven by new product launches and improvement in margins by
product transfer to the Indian facilities.

One of the most profitable CRAMS players: Cadila’s CRAMS joint venture with
Nycomed and Hospira is one of the most profitable in the industry, with OPM of more
than 50% and 30%, respectively. Under Nycomed, Cadila expects to commence supply
of 14 APIs in the near future. On the Hospira front, where current capacity utilisation is
pegged at 15–20%, the company expects to scale it up further by taping the U.S. region
in FY2011; currently, the it is only concentrated in Europe.

Outlook and valuation
We expect net sales to post a 19.4% CAGR to `5,100cr and EPS to report a 26.6%
CAGR to `39.6 over FY2010–12E. At current levels, the stock is trading at 22.2x and
17.2x FY2011E and FY2012E earnings, respectively. We maintain Neutral on the stock
at these levels.

October 19, 2010 6


Profit & Loss Statement (Consolidated)
Y/E March (` cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Gross sales 1,875 2,535 2,917 3,615 4,361 5,162
Less: Excise duty 89 108 55 40 54 62
Net Sales 1,786 2,266 2,862 3,574 4,308 5,100
Other operating income 43 57 65 113 106 122
Total operating income 1,828 2,323 2,928 3,687 4,414 5,222
% chg 23.1 27.0 26.0 25.9 19.7 18.3
Total Expenditure 1,477 1,865 2,322 2,878 3,440 4,028
Net Raw Materials 637 790 957 1,178 1,439 1,699
Other Mfg costs 86 112 122 - 258 316
Personnel 185 247 311 441 517 612
Other 569 715 933 1,259 1,226 1,401
EBITDA 309 401 541 696 867 1,072
% chg 4.0 30.0 34.7 28.8 24.5 23.6
(% of Net Sales) 17.3 17.7 18.9 19.5 20.1 21.0
Depreciation& Amortisation 82 97 112 134 143 159
EBIT 227 304 429 562 724 914
% chg 66.5 34.4 40.9 31.1 28.7 26.2
(% of Net Sales) 12.7 13.4 15.0 15.7 16.8 17.9
Interest & other Charges 29 41 121 82 82 71
Other Income 34 10 20 16 22 25
(% of PBT) 12 3 5 3 3 3
Recurring PBT 274 330 394 609 769 990
% chg 235.0 20.6 19.3 54.6 26.3 28.8
Extraordinary Expense/(Inc.) - 7 24 5 - -
PBT (reported) 274 323 370 604 769 990
Tax 32.4 61.3 66.6 74.1 130.1 163.3
(% of PBT) 11.8 19.0 18.0 12.3 16.9 16.5
PAT (reported) 242 262 303 530 639 827
Less: Minority interest (MI) 7.7 4.5 (0.1) 24.7 12.8 16.5
PAT after MI (reported) 234 258 303 505 626 810
ADJ. PAT 234 265 327 510 626 810
% chg 60.1 13.1 23.8 55.8 22.8 29.4
(% of Net Sales) 13.1 11.4 10.6 14.1 14.5 15.9
Basic EPS (`) 11.4 12.6 14.8 24.7 30.6 39.6
Fully Diluted EPS (`) 11.4 12.6 14.8 24.7 30.6 39.6
% chg (40.1) 10.2 17.5 66.8 23.9 29.4

October 19, 2010 7


Balance Sheet (Consolidated)
SOURCES OF FUNDS
Equity Share Capital 63 63 68 68 102 102
Reserves& Surplus 803 999 1,123 1,494 1,929 2,537
Shareholders’ Funds 866 1,062 1,191 1,562 2,032 2,639
Minority Interest 14 19 23 48 60 77
Total Loans 454 838 1,267 1,154 1,044 844
Deferred Tax Liability 114 123 132 138 153 168
Total Liabilities 1,447 2,043 2,613 2,902 3,289 3,728
APPLICATION OF FUNDS
Gross Block 1,311 1,627 1,809 2,289 2,585 2,881
Less: Acc. Depreciation 497 652 757 889 1,032 1,190
Net Block 815 975 1,052 1,400 1,553 1,690
Capital Work-in-Progress 122 140 189 60 60 60
Goodwill 41 285 478 478 478 478
Investments 26 25 25 26 26 26
Current Assets 987 1,122 1,561 1,879 2,323 2,851
Cash 99 93 252 162 257 406
Loans & Advances 220 201 224 286 345 408
Other 668 828 1,086 1,431 1,721 2,037
Current liabilities 545 505 692 942 1,152 1,378
Net Current Assets 442 617 870 937 1,172 1,473
Mis. Exp. not written off - - - - - -
Total Assets 1,447 2,043 2,613 2,902 3,289 3,728

Cash Flow Statement (Consolidated)
Profit before tax 274 323 370 604 769 990
Depreciation 82 97 112 134 143 159
(Inc)/Dec in Working Capital (39) (212) (121) (157) (140) (153)
Less: Other income 34 10 20 16 22 25
Direct taxes paid 29 40 49 74 115 149
Cash Flow from Operations 255 159 291 491 636 822
(Inc.)/Dec. in Fixed Assets (203) (493) (388) (351) (296) (296)
(Inc.)/Dec. in Investments (45) (1) (1) (1) - -
Other income 34 10 20 16 22 25
Cash Flow from Investing (214) (483) (368) (337) (274) (271)
Issue of Equity - - - - - -
Inc./(Dec.) in loans (10) 384 421 (114) (110) (200)
Dividend Paid (Incl. Tax) (70) (84) (71) (130) (157) (203)
Others 95 18 (114) - - -
Cash Flow from Financing 15 318 236 (244) (267) (403)
Inc./(Dec.) in Cash 55 (6) 159 (89) 95 148
Opening Cash balances 44 99 93 252 162 257
Closing Cash balances 99 93 252 162 257 406

October 19, 2010 8


Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 59.4 53.9 45.9 27.5 22.2 17.2
P/CEPS 43.9 39.2 33.5 21.7 18.1 14.3
P/BV 16.1 13.1 11.7 8.9 6.8 5.3
Dividend yield (%) 0.4 0.4 0.4 0.8 1.0 1.2
EV/Sales 8.0 6.5 5.2 4.2 3.4 2.8
EV/EBITDA 46.1 36.5 27.6 21.4 16.9 13.4
EV / Total Assets 9.8 7.2 5.7 5.1 4.5 3.8
Per Share Data (`)
EPS (Basic) 11.4 12.6 14.8 24.7 30.6 39.6
EPS (fully diluted) 11.4 12.6 14.8 24.7 30.6 39.6
Cash EPS 15.5 17.3 20.3 31.3 37.6 47.4
DPS 3.0 2.8 3.0 5.4 6.6 8.5
Book Value 42.4 52.0 58.3 76.5 99.4 129.1
DuPont Analysis
EBIT margin 12.7 13.4 15.0 15.7 16.8 17.9
Tax retention ratio 88.2 81.0 82.0 87.7 83.1 83.5
Asset turnover (x) 1.5 1.4 1.4 1.4 1.5 1.6
ROIC (Post-tax) 16.7 15.3 16.7 20.0 21.4 24.6
Cost of Debt (Post Tax) 5.8 5.2 9.4 6.0 6.2 6.3
Leverage (x) 0.7 0.6 0.8 0.7 0.5 0.3
Operating ROE 24.6 21.0 22.3 30.4 29.1 29.7
Returns (%)
ROCE (Pre-tax) 17.5 17.4 18.4 20.4 23.4 26.0
Angel ROIC (Pre-tax) 20.4 22.5 26.6 28.9 30.8 34.6
ROE 29.9 27.4 29.1 37.0 34.8 34.7
Turnover ratios (x)
Asset Turnover (Gross Block) 1.5 1.6 1.7 1.8 1.8 1.9
Inventory / Sales (days) 64 68 67 68 71 72
Receivables (days) 48 50 52 56 59 59
Payables (days) 72 73 70 82 90 92
WC cycle (ex-cash) (days) 65 68 71 69 70 69
Solvency ratios (x)
Net debt to equity 0.4 0.7 0.9 0.6 0.4 0.2
Net debt to EBITDA 1.1 1.9 1.9 1.4 0.9 0.4
Interest Coverage (EBIT / Int) 7.7 7.4 3.6 6.8 8.8 12.9

October 19, 2010 9


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Cadila Healthcare
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

October 19, 2010 10

Cadila ru2 qfy2011-191010

More Related Content

What's hot

Similar to Cadila ru2 qfy2011-191010

More from Angel Broking

Recently uploaded

Cadila ru2 qfy2011-191010