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Cadila Health.: US was the key growth driver - Views on News from Equitymaster
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Cadila Health.: US was the key growth driver
Jan 7, 2015

Cadila Healthcare has announced its 2QFY15 results. The company has reported 21.5% YoY growth in net sales and an increase of 51.6% in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 21.5% YoY during the quarter, led by growth in US and India.
  • Operating margins expand by 5.1% to 20% for the quarter.
  • Bottom line of the company is up by 51.6% YoY, on the back of robust operating performance.

Financial performance: A snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 16,983 20,635 21.5% 37,186 40,839 9.8%
Other operating income 485 445 -8.3% 782 742 -5.2%
Expenditure 14,863 16,866 13.5% 31,603 33,606 6.3%
Operating profit (EBDITA) 2,605 4,214 61.8% 6,366 7,975 25.3%
EBDITA margin (%) 14.9% 20.0%   16.8% 19.2%  
Other income 122 146 19.5% 226 250 10.5%
Interest (net) 193 173 -10.7% 374 353 -5.5%
Depreciation 518 733 41.6% 1,195 1,410 18.0%
Profit before tax 2,016 3,455 71.3% 5,024 6,462 28.6%
Tax 101 571 465.1% 626 1,096 75.2%
Minority Int/Exceptional exps 81 103 27.2% 162 184  
Profit after tax/(loss) 1,834 2,780 51.6% 4,237 5,182 22.3%
Net profit margin (%) 10.5% 13.2%   11.2% 12.5%  
No. of shares (m)         205  
Diluted earnings per share (Rs)         46  
Price to earnings ratio (x)*         32  
*based on trailing 12 months earnings

What has driven performance in 2QFY15?
  • The topline (including other operating income) of Cadila Healthcare grew by 20.6% YoY during the quarter driven by strong growth in its US exports and Domestic API.

    Revenue break-up
    (Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
    Domestic
    Formulations 6,263 6,808 8.7% 13,012 13,557 4.2%
    API 119 257 116.0% 359 497 38.4%
    Consumer & Others 1,615 1,770 9.6% 3,334 3,489 4.6%
    - Consumer products 1,039 1,101 6.0% 2,114 2,176 2.9%
    - Animal health & others 576 669 16.1% 1,220 1,313 7.6%
    Total domestic (i) 7,997 8,835 10.5% 16,705 17,543 5.0%
    Exports
    Formulations 7,438 10,331 38.9% 17,209 20,102 16.8%
    - North America (US) 4,786 8,020 67.6% 11,951 15,185 27.1%
    - Europe 942 777 -17.5% 1,954 1,789 -8.4%
    - Brazil 654 647 -1.1% 1,198 1,191 -0.6%
    - Japan 131   2 -98.5% 131   2 -98.5%
    - Emerging markets 925 885 -4.3% 1,975 1,935 -2.0%
    APIs 738 630 -14.6% 1,505 1,397 -7.2%
    Animal Health 134 132 -1.5% 266 264 100.0%
    JVs 1,068 1,136 6.4% 2,257 2,325 3.0%
    Total exports (ii) 9,378 12,229 30.4% 21,237 24,088 13.4%
    Grand Total (i+ii) 17,375 21,064 21.2% 37,942 41,631 9.7%

  • Company's domestic formulations segment witnessed modest growth of 8.7% YoY. Growth was impacted by the impact of DPCO and discontinuation of contract from Boehringer Ingelheim. Barring this, growth was at approx 14% YoY. Company expects double digit growth from 4QFY15 onwards. The domestic API also witnessed robust growth on back of lower base in 2QFY15.

  • The US formulations witnessed robust growth of 67.5% YoY. Company continued to witness ramp up in its products launched as authorized generics (AG) from Abbott and also launched four new products in US. Currently, products like Trilipix, Tricor, Divalproex, Zemplar are marketed as AG under partnership with Abbott. As per the management, AGs will be one of the future growth drivers for the US business. The US growth is impressive, given that the quarter was quite challenging for the majority of the Indian pharma companies in the US. Cadila continues to make robust filings in the US. Barring the US, all the other geographies have witnessed subdued growth.

  • Operating margins expanded by 5.1% to 20% for the quarter. This is the second consecutive quarter, which has seen healthy margin improvement for the company.

  • Bottomline of the company was up by 51.6% YoY on the back of robust operating performance. Decline in interest costs and increase in other income also attributed to this robust performance.
What to expect?
At the current price of Rs 1,471, the stock is trading at a multiple of 19.9 times our estimated FY17 earnings. Cadila's growth going forward will be driven by US and India. Apart from this, ramp up in JVs too are important growth drivers. The company has been quite proactive in making drug filings and among various geographies, US has been an area of focus. The company has been building a niche product pipeline, which includes high entry barrier drugs like Injectables, Transmerdals, controlled substance and Nasal sprays. Hence, the margins and revenues are expected to ramp up going forward. The company generates revenues through its own sales network and also through partners. For example, the partnership with Abbott has proved to be quite beneficial. This quarter was quite challenging for Indian pharma companies in US. However, Cadila has done well due to this strategy. We are confident of good growth in the upcoming period. We thus reiterate our Hold rating on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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