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Cadila Health.: Good performance - Views on News from Equitymaster
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Cadila Health.: Good performance
Feb 19, 2015

Cadila Healthcare has announced its 3QFY15 results. The company has reported 17.5% YoY growth in net sales and an increase of 51.5% in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 17.5% YoY during the quarter, led by growth in US, India and the emerging markets. Notably even the company's JVs witness good growth in revenues for the quarter.
  • Operating margins expand by 4.6% to 20.4% for the quarter.
  • Led by robust performance at the operating level, net profits also grow by 51.5% YoY.

(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Net sales 18,380 21,595 17.5% 51,437 62,435 21.4%
Other operating income 337 299 -11.1% 1,118 1,041 -6.9%
Expenditure 15,764 17,423 10.5% 44,139 51,033 15.6%
Operating profit (EBDITA) 2,953 4,472 51.5% 8,416 12,443 47.9%
EBDITA margin (%) 15.8% 20.4%   16.0% 19.6%  
Other income 128 100 -21.7% 375 350 -6.7%
Interest (net) 190 162 -14.4% 662 516 -22.0%
Depreciation 495 707 42.9% 1,485 2,117 42.6%
Profit before tax 2,396 3,703 54.6% 6,645 10,161 52.9%
Tax 408 791 93.7% 713 1,887 164.8%
Minority Int/Exceptional exps 127 93 -27.1% 289 272 -5.9%
Profit after tax/(loss) 1,860 2,819 51.5% 5,644 8,002 41.8%
Net profit margin (%) 9.9% 12.9%   10.7% 12.6%  
No. of shares (m)         205  
Diluted earnings per share (Rs)         51  
Price to earnings ratio (x)*         31  
*based on trailing 12 months earnings

What has driven performance in 3QFY15?
  • The topline (including other operating income) of Cadila Healthcare grew by 17.5% YoY during the quarter driven by strong growth in US exports and the domestic business.

    Revenue break-up
    (Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
    Domestic
    Formulations 5,890 6,419 9.0% 18,405 19,975 8.5%
    API 112 225 100.9% 431 722 67.5%
    Consumer & Others 1,656 1,820 9.9% 4,915 5,310 8.0%
    - Consumer products 1,034 1,140 10.3% 3,223 3,317 2.9%
    - Animal health & others 622 680 9.3% 1,692 1,993 17.8%
    Total domestic (i) 7,658 8,464 10.5% 23,751 26,007 9.5%
    Exports
    Formulations 9,161 11,429 24.8% 22,871 31,530 37.9%
    - North America (US) 6,316 8,959 41.8% 14,921 24,144 61.8%
    - Europe 1,186 847 -28.6% 3,056 2,635 -13.8%
    - Brazil 687 610 -11.2% 1,864 1,801 -3.4%
    - Japan 145  -     397  -    
    - Emerging markets 827 1,013 22.5% 2,633 2,950 12.0%
    APIs 731 734 0.4% 2,127 2,131 0.2%
    Animal Health 163 136 -16.6% 427 400 100.0%
    JVs 1,012 1,217 20.3% 3,388 3,542 4.5%
    Total exports (ii) 11,067 13,516 22.1% 28,813 37,603 30.5%
    Grand Total (i+ii) 18,725 21,980 17.4% 52,564 63,610 21.0%

  • Company's domestic formulations segment witnessed modest growth of 9% YoY. Growth was impacted by discontinuation of contract from Boehringer Ingelheim. Barring this, growth stood at around 10% YoY. Further the company had also discontinued two products, due to which sales were impacted by approx 2%. These products were believed to be low margin drugs and hence discontinued. Company expects double digit growth from 4QFY15 onwards.

  • For the other geographies the growth was a mixed bag. Geographies like the US, emerging markets witnessed good traction, while sales from Brazil and Europe were under pressure.

  • Operating margins expanded by 4.6% to 20.4% for the quarter. This is the third consecutive quarter for the company, when it has shown healthy margin improvement. The company continues to focus on better product mix to drive the margins going forward.

  • Led by robust performance at the operating level, net profits also grew by 51.5% YoY. Similarly, growth in PBT was healthy too at 54% YoY.
What to expect?
At the current price of Rs 1,594, the stock is trading at a multiple of 21.5 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. After many quarters, JV sales have shown some traction during the quarter.

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. For many pharma companies, the US growth has been quite muted but Cadila has surpassed on this front. We are confident of good growth in the upcoming period. However, the current valuations do not leave any room to Buy the stock. Having said that, those investors who have the stock in their portfolio should Hold on to the same. We shall soon revise our estimates.

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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