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Cadila Healthcare: Exports give the boost
Apr 30, 2010

Cadila Healthcare has announced its FY10 results. The company has reported 26% YoY and 75% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 26% YoY during the year primarily led by growth in the export business.
  • Operating margins improve by 1.2% led by a substantial fall in purchase of traded goods (as percentage of sales).
  • Bottomline grows by 63% YoY during FY10 (excluding extraordinary items), due to strong performance at the operating level, reduction in interest costs and lower forex losses.


Financial performance: A snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 7,234 8,466 17.0% 29,275 36,869 25.9%
Expenditure 5,743 6,572 14.4% 23,217 28,782 24.0%
Operating profit (EBDITA) 1,492 1,894 27.0% 6,058 8,087 33.5%
EBDITA margin (%) 20.6% 22.4%   20.7% 21.9%  
Other income 43 51 18.2% 204 159 -21.9%
Interest (net) 440 158 -64.2% 978 809 -17.2%
Depreciation 314 398 26.7% 1,118 1,339 19.7%
Profit before tax 781 1,389 77.9% 4,165 6,098 46.4%
Exceptional items (223) -   (241) (46)  
Forex loss/(gain) (129) 11   227 12 -94.6%
Tax 158 68 -57.2% 666 741 11.2%
Profit after tax/(loss) 529 1,311 147.7% 3,032 5,298 74.8%
Net profit margin (%) 7.3% 15.5%   10.4% 14.4%  
No. of shares (m)       125.6 136.5  
Diluted earnings per share (Rs)         38.8  
Price to earnings ratio (x)         14.5  

What has driven performance in FY10?
  • Cadila’s topline for the year registered a robust 26% YoY growth driven by strong growth in its exports business. Both formulations and APIs exports did well to grow by 48% YoY and 28% YoY respectively. The growth in formulations exports was buoyed by 69% YoY growth in sales from the US market and 31% YoY growth in the EU market. The consumer business also reported a healthy growth rate of 37% YoY.

  • The domestic formulations business witnessed a growth of 12% YoY. This was led by the existing products and the launch of more than 30 new products including line extensions during the year.

  • Operating margins improved by 1.2% during the year due to a substantial fall in purchase of traded goods (as percentage of sales). The latter fell from 11.4% of sales in FY09 to 8.5% in FY10. Thus operating profits registered a growth of 34% YoY during the year. Led by the strong performance at the operating level, reduction in interest costs and lower forex losses, the bottomline grew by 63% YoY (excluding extraordinary items).

What to expect?
At the current price of Rs 563, the stock is trading at a multiple of 15.1 times our estimated FY12 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. The topline and operating profit performance has been in line with our estimates, but the company has done better than what we had estimated as far as the bottomline is concerned. Hence, we will have to upgrade our numbers accordingly for the full year. That said, while we are positive about the growth prospects of the company from a long term perspective, current valuations do not leave much on the table for investors.

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