Cadila: Margins under pressure - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Cadila: Margins under pressure

Mar 22, 2002

The third quarter results of Cadila Healthcare show a sharp improvement in topline growth. As against a 7% growth in the first half of the current year, the company has logged a growth rate of almost 30% in the third quarter. However, the drop in operating margins is somewhat disappointing. The company however, seems to be on the fast track on its way up through the inorganic route.

(Rs m)3QFY013QFY02Change
Sales 1,171 1,518 29.7%
Other Income 3 4 73.6%
Expenditure 960 1,283 33.6%
Operating Profit (EBDIT) 210 236 12.0%
Operating Profit Margin (%) 18.0%15.5%-13.6%
Interest Exp/ (Income) (23) 19
Depreciation 44 53 20.2%
Profit before Tax 192 169 -12.1%
Tax 17.52224.4%
Profit after Tax/(Loss) 175 147 -15.7%
Net profit margin (%)14.9%9.7% 
No. of Shares (eoy) (m)6060 
Diluted Earnings per share*11.79.8 
P/E (at current price) 12.8 
(*- annualised)   

The strong growth rate has been possible due to launch of new products in the neuroscience division, acquisition of perpetual rights to market five leading brands from Asta and acquisition of 'Aten' brand from Kopran last year. Further the company has also logged several co-marketing alliances with Kopran, Ranbaxy and E-Merck. However, margins in this business are low compared to other businesses which partially explains the drop in overall margins.

The company has ambitious plans to emerge amongst the top 3 pharmaceutical companies in India by March 2004. To achieve the same, the company has invested heavily in creating large scale capacities which would help it sustain growth momentum in coming times. Realising its over dependence on few slow growing therapeutic segments, the company has made some rapid moves, including acquisitions, which will strongly position the company in some of the fast growing therapeutic segments.

Though domestic growth is likely to be low in current year, the growth would pick up from next year, once the additional manufacturing capacity goes on stream. Further, the merged numbers with German Remedies would show a robust picture of the company. The research initiatives of the company are also capable of giving surprises going forward.

However, what is concerning is the rising interest burden on the company. The debt amount of the company has rose considerably in last one year to fund its acqusitions and research initiatives. The payback period of these acquisitions would have to justify the rise in interest costs. The valuations of the company going forward would thus depend on how fast the debt backed acquisitions of the company payoff. At the current market price of Rs 125, the stock trades at 12x its third quarter annualised earnings.

Equitymaster requests your view! Post a comment on "Cadila: Margins under pressure". Click here!


More Views on News

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

Demerger of Financial & Pharma Businesses puts Piramal Enterprises in Limelight (Views On News)

Oct 8, 2021

The company's shareholders will be issued 4 shares in the demerged entity for every 1 held in Piramal Enterprises.

Block Deal Disappoints Max Healthcare Shareholders. Stock Falls 6% (Views On News)

Sep 30, 2021

The divestment of 6.6% stake by the promoter is considered to be one of the largest block deals of the market.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms