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Cadila Health.: Exports shine again - Views on News from Equitymaster

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Cadila Health.: Exports shine again
Jan 19, 2011

Cadila Healthcare has announced its 3QFY11 results. The company has reported 18% YoY and 26% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 18% YoY during the quarter led by growth in both the domestic and exports businesses.
  • Operating margins improve marginally by 0.8% led by a fall in other expenditure (as percentage of sales).
  • Bottomline grows by 26% YoY during 3QFY11 due to strong performance at the operating level coupled with reduction in interest costs.

Financial performance: A snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 9,910   11,668 17.7% 28,403 34,173 20.3%
Expenditure 7,810 9,106 16.6% 22,210 26,189 17.9%
Operating profit (EBDITA) 2,099 2,562 22.0% 6,193 7,984 28.9%
EBDITA margin (%) 21.2% 22.0%   21.8% 23.4%  
Other income  25  29 19.5%  108  97 -10.5%
Interest (net)  217  187 -13.6%  652  591 -9.4%
Depreciation  334  334 0.0%  941  952 1.1%
Profit before tax 1,574 2,070 31.6% 4,708 6,538 38.9%
Exceptional items (11) -    (46) -  
Forex loss/(gain) (38)  6 -116.2%  1  79 7072.7%
Tax  255  368 44.3%  673  960 42.6%
Profit after tax/(loss) 1,346 1,696 26.0% 3,988 5,499 37.9%
Net profit margin (%) 13.6% 14.5%   14.0% 16.1%  
No. of shares (m)       136.5 204.7  
Diluted earnings per share (Rs)         33.3  
Price to earnings ratio (x)*         23.2  
*based on trailing 12 months earnings

What has driven performance in 3QFY11?
  • The topline of Cadila Healthcare registered a healthy 18% YoY growth during the quarter driven by strong growth in its domestic and exports businesses. The 20% YoY growth in formulations exports was bolstered by the US which grew by 33% YoY. This was led by existing products and 4 new products launched during the quarter of which two were Day 1 launches. In the US, the company filed 3 ANDAs during the quarter and now has a total of 59 ANDAs pending US FDA approval. The cumulative ANDA filings stand at 118. The formulations business in Brazil registered a growth of 33% YoY, while the Japanese business registered a growth of 22% YoY. Zydus Wellness, the subsidiary of Cadila posted a 21% growth in sales during the quarter led by Sugar Free, Nutralite and Ever Yuth. Zydus Wellness also entered the nutraceutical market by launching the nutritional health drink ActiLife.

  • The domestic formulations business witnessed a growth of 17% YoY during 3QFY11. This was led by the existing products and the launch of 9 new products including line extensions. While Cadila’s Nycomed JV did not do too well during the quarter, its Hospira JV managed to clock healthy revenues of Rs 366 m during 3QFY11 and Rs 818 m in 9mFY11.

  • Operating margins improved marginally by 0.8% during the quarter due to a dip in other expenditure (as percentage of sales). Other expenditure fell from 36.3% of sales in 3QFY10 to 35.3% in 3QFY11. Thus operating profits registered a growth of 22% YoY during the quarter. Growth in PBT was higher by 32% YoY due to reduction in interest costs. Although the 26% YoY growth in net profits was higher than that in operating profits, it was nevertheless lower than the growth in PBT on account of an increase in tax expenses.

What to expect?
At the current price of Rs 773, the stock is trading at a multiple of 15.0 times our estimated FY13 earnings. Going forward, we expect Cadila's growth to be driven by increasing scale of its US and other export formulation businesses. Further, strong performances by the consumer healthcare and custom manufacturing businesses and the JV with Hospira are also expected to contribute to Cadila's overall growth going forward.

However, pricing pressure in the global generics market and volatile foreign currency movements are the key challenges that Cadila faces. Thus, while we are positive about the growth prospects of the company from a long term perspective, current valuations ResearchPro subscribers can view latest updates here do not leave much on the table for investors.

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