1. 4QFY2010 Result Update I Pharmaceutical
April 30, 2010
Cadila Healthcare BUY
CMP Rs565
Performance Highlights Target Price Rs634
Cadila Healthcare (Cadila), one of the most diversified Pharma companies in Investment Period 12 Months
our coverage universe, continued its strong performance and reported good
set of numbers for 4QFY2010 driven by the Export Formulation Segment, viz. Stock Info
the US and Europe. On the Domestic Formulation front, the company hired
Sector Pharmaceutical
600 sales force during FY2010 to increase the penetration-led growth in the
market and is now targeting 15% growth. For FY2011E, the company has Market Cap (Rs cr) 11,535
guided for US $1bn on the Top-line front, implying a growth of 27-28% with
Beta 0.4
OPM improvement of 100bp from current levels of 19.5%. We recommend a
Buy on the stock. 52 WK High / Low 605 / 188
Another strong quarter: Cadila reported Net Sales of Rs815.9cr (Rs702.6cr), Avg. Daily Volume 23,574
up 16.1% driven by the Export Segment. On the Export front, the US market Face Value (Rs) 5
grew 42.3% while Europe grew by 50.0% yoy. However, the Domestic
business grew by a modest 8.4% on the back of introduction of new divisions. BSE Sensex 17,559
Cadila clocked OPM of 19.4% (18.3%), which was in line with our estimate. Nifty 5,278
However, Gross Margins came in at 64.4% (65.5%), which was lower on
account of higher Raw Material cost. Other Expenses were flat yoy. The Reuters Code CADI.BO
company reported Net Profit of Rs118.8cr (Rs52.9cr), which more than
Bloomberg Code CDH@IN
doubled on a yoy basis albeit on a low base but was driven by low Interest
and Tax charges. For FY2010, the company reported Net Sales of Rs3,574cr Shareholding Pattern (%)
(Rs 2,862cr) was up 24.9%, with OPM of 19.5% and Net Profit of Rs505.8cr
(Rs303.0cr) Promoters 74.8
MF/Banks/Indian FIs 14.4
Outlook and Valuation: Cadila is poised to achieve robust growth after having
consolidated its business across key geographies. Cadila's business in the US, FII/NRIs/OCBs 5.5
RoW region and its Consumer Division is likely to clock strong growth on the Indian Public 5.3
back of new launches, economy of scale and vertical consolidation resulting in
Operating Margin expansion. We expect Net Sales to post CAGR of 19.4% to Abs. (%) 3m 1yr 3yr
Rs5,100cr and EPS to clock CAGR of 26.6% to Rs39.6 over FY2010-12E. The
Sensex 7.3 54.0 26.6
stock is trading at 18.4x and 14.2x FY2011E and FY2012E Earnings,
respectively. We recommend a Buy on the stock, with a Target Price of Rs634,
Cadila 18.8 175.7 162.4
valuing the company at 16x FY2012E Earnings
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 2,862 3,574 4,308 5,100
% chg 26.3 24.9 20.5 18.4
Net Profit 303.0 505.8 626.2 810.4
% 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) 38.0 22.8 18.4 14.2 Sarabjit Kour Nangra
RoE (%) 29.1 37.0 34.8 34.7 Tel: 022 – 4040 3800 Ext: 343
RoCE (%) 18.4 20.4 23.4 26.0 E-mail: sarabjit@angeltrade.com
P/BV (x) 9.7 7.4 5.7 4.4
Sushant Dalmia
EV/Sales (x) 4.4 3.5 2.9 2.3
Tel: 022 – 4040 3800 Ext: 320
EV/EBITDA (x) 23.2 17.9 14.2 11.2
E-mail: sushant.dalmia@angeltrade.com
Source: Company, Angel Research.
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Cadila Healthcare I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance
Y/E March (Rs cr) 4QFY2010 4QFY2009 % chg FY2010 FY2009 % chg
Net Sales 815.9 702.6 16.1 3,574 2,862 24.9
Other Income 35.8 25.2 42.2 128.6 85.5 50.5
Total Income 851.7 727.7 17.0 3,703 2,948 25.6
PBIDT 158.7 128.3 23.7 696.0 540.6 28.8
Operating Margin (%) 19.4 18.3 19.5 18.9
Financial Cost 16.9 31.1 (45.8) 82.1 120.5 (31.8)
Depreciation 39.8 31.4 26.7 133.9 111.8 19.7
PBT 137.8 91.0 51.5 608.6 393.7 54.6
Provision for Taxation 6.8 15.8 (57.2) 74.1 66.6 11.2
PAT before Exceptional 131.1 75.2 74.3 534.5 327.2 63.4
Exceptional 0.0 0.0 4.6 24.1 (80.9)
Minority 12.3 5.1 141.5 24.1 0.1 -
PAT 118.8 52.9 124.5 505.8 303.0 66.9
Source: Company, Angel Research
Key Highlights
Revenues up 16% driven by Export business: Cadila reported Net Sales of
Rs815.9cr (Rs702.6cr) up 16.1% driven by the Export segment. On the Export front
the US market grew by 42.3% while Europe grew by 50.0% yoy. However, the
Domestic business grew by a modest 8.4% on introduction of new divisions. For
FY2010, the company reported Net Sales of Rs3,574cr (Rs 2,862cr) was up 24.9%.
On the Export front, the US business grew by a strong 42.3% to Rs185.3cr
(Rs130.2cr) contributing 22.4% (18.3%) to the Total Sales for the quarter. The
company has indicated that it has 20% market share in 12 of the 29 products
launched in the US. Cadila has also launched Flomax in the US, with 25% market
share on day 1. The company filed 14 ANDAs during the year taking cumulative
filings to 106 of which 52 are pending approval. Europe grew by 50.0% to Rs57.6cr
(Rs38.4cr) driven by launch of Clopidogrel. However, the Emerging markets de-grew
by 22.0% to Rs40.2cr (Rs51.5cr) as the company shifted manufacturing products
from Ahmedabad to Goa.
Exhibit 2: Export driven by US and Europe
200 185
178
160
160 148
130
(Rs cr)
120 104
80 60
53 58
38
40
0
4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010
US Europe
Source: Company, Angel Research
April 30, 2010 2
3. Cadila Healthcare I 4QFY2010 Result Update
In the Domestic market on the Formulation front, Net Sales came in at Rs316.4cr,
up by a moderate 8.4% to Rs316.4cr (Rs291.8cr) on the back of addition of new
divisions. Consumer Division Revenue stood at Rs63.3cr (Rs44.5cr), up 42.3% yoy
with strong growth across all three brands.
Exhibit 3: Domestic Formulation business remains subdued
500
394
400 372 364
316
292
300
(Rs cr)
200
100 64 65 75 63
45
0
4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010
Domestic Formulation Consumer division
Source: Company, Angel Research
On the CRAMS front, the Nycomed JV recorded Revenues of Rs18.4cr (Rs31.9cr),
down 42.4%. The company has indicated that it will commence supplying 14 APIs
from the next quarter under the JV which would additionally contribute Rs25cr in
FY2011. While contribution from the Hospira JV comes to Rs21.6cr, the JV is
expected to commence supply of one or two products to the US in FY2011, which
will lead to strong Revenue growth.
Exhibit 4: CRAMS Sales Trend
35 32
29
30
25 23
21 20 22
(Rs cr)
20 19 18
15
10 7
5
0
4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010
Nycomed Hospira
Source: Company, Angel Research
April 30, 2010 3
4. Cadila Healthcare I 4QFY2010 Result Update
OPM expansion in line with estimate: Cadila clocked OPM of 19.4% (18.3%), which
was in line with our estimate. Gross Margins at 64.4% (65.5%) came in lower on the
back of higher Raw Material costs. However, Other Expenses were flat at Rs258.4cr
(Rs257.2cr) yoy. Employee expenses for the year increased 44.3% to Rs108.2cr
(Rs75.0cr).
Exhibit 5: OPM expands on lower Other expenses
21.0
20.5 20.5
20.0
19.5 19.4
19.0 19.1
18.9
18.5
18.3
18.0
17.5
17.0
4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010
Source: Company, Angel Research
Bottom-line driven by lower Interest and Tax charges: Cadila reported Net Profit of
Rs118.8cr (Rs52.9cr), which more than doubled on a yoy basis albeit on a low base
but was driven by low Interest and Tax charges. Financial cost for the quarter came
in at Rs16.8cr (Rs31.1cr), down by 45.8% yoy while Tax charges came in at Rs6.8cr
(Rs15.8cr), down 57.2% yoy on reversal of deferred tax liability and commencement
of operations at Sikkim.
Other Takeaways
• For FY2011, the company has guided for stellar Top-line growth of 27-28% to
US $1bn (Rs4,600cr) with OPM improvement of 100bp from current levels of
19.5%.
• On the Domestic front, to increase penetration-led growth, the company hired
600 sales personnel in FY2010 taking its total sales force to 4,000.
• Cadila had total debt of Rs1,090cr (Net Debt of Rs840cr) as on FY2010, of
which 50% is denominated in foreign currency. The company has managed to
reduce Net Debt/Equity to 0.52x as on FY2010 as against 0.85x as on
FY2009.
• For FY2011, Cadila has indicated to incur capex of Rs300cr.
April 30, 2010 4
5. Cadila Healthcare I 4QFY2010 Result Update
Outlook and Valuation
Cadila is one of the most diversified Pharma companies in our coverage universe,
which provides investors exposure to all business segments, viz. Global Generic,
Branded Generic, Domestic Formulations, Consumer Division, CRAMS and R&D.
The company is poised to achieve robust growth after having consolidated its
business across key geographies. Cadila's business in the US, RoW region and its
Consumer Division is likely to clock strong growth on the back of new launches,
economy of scale and vertical consolidation resulting in Operating Margin
expansion. Further, traction in the CRAMS Segment (in the Hospira JV) has emerged
a key catalyst for the company.
We have revised our estimates to factor in higher sales from the US and Hospira JV,
while lowering our Interest and Tax assumptions for FY2011E and FY2012E.
Exhibit 6: Revised Estimates
Old Estimate New Estimate % change
FY2011 FY2012 FY2011 FY2012 FY2011 FY2012
Sales (Rs cr) 4,182 4,943 4,308 5,100 3.0 3.2
OPM (%) 20.1 21 20.1 21 0.0 0.0
Net Profit (Rs cr) 560 707.8 626.2 810.4 11.7 14.5
EPS (Rs) 27.4 34.6 30.6 39.6 11.7 14.5
Source: Angel Research
We expect Net Sales to post CAGR of 19.4% to Rs5,100cr and EPS to clock CAGR of
26.6% to Rs39.6 over FY2010-12E. The stock is trading at 18.4x and 14.2x
FY2011E and FY2012E Earnings, respectively. We recommend a Buy on the stock,
with a Target Price of Rs634, valuing the company at 16x FY2012E Earnings
Exhibit 7: One-year forward PE Band
600
20x
15x
400
10x
200
5x
-
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Source: C-line, Angel Research
April 30, 2010 5
9. Cadila Healthcare I 4QFY2010 Result Update
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Cadila Healthcare
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
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 Rs 1 lakh for Angel and its Group companies.
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April 30, 2010 9
