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Cadila Healthcare: Take care

May 3, 2001

Cadila Healthcare Ltd. results are below our expectations. Though, year on year basis sales have grown by 6.5% (expected 10.5%), it has infact showed a negative growth (2.7%) on a sequential basis. Operating margins have dipped from 18% in Q3FY01 to a paltry 5.9% in Q4FY01. The sudden drop in operating margins is unexplained at this point of time. Thanks to substantial reduction in interest cost and income from parking of IPO funds, bottomline showed an apparent growth of 64%.

(Rs m) FY00 FY01 Change 3QFY01 4QFY01 Growth**
Sales 4,778 5,088 6.5% 1171 1139 -2.7%
Other Income 74 74 0.0% 25 -8 -132.0%
Expenditure 4,088 4,351 6.4% 960 1072 11.7%
Operating Profit (EBDIT) 690 737 6.8% 211 67 -68.2%
Operating Profit Margin (%) 14.4% 14.5% 0.3% 18.0% 5.9% -67.4%
Interest 213 (46) -121.6% 0 (57) -
Depreciation 99 149 50.5% 44 24 -45.5%
Profit before Tax 452 708 56.6% 192 92 -52.1%
Tax 53 55 3.8% 18 11 -38.9%
Profit after Tax/(Loss) 399 653 63.7% 174 81 -53.4%
Net profit margin (%) 8.4% 12.8% 14.9% 7.1%
No. of Shares (eoy) (m) 60 60 60 60
Diluted Earnings per share* 6.7 10.9 11.6 5.4
P/E (at current price) 15.1 9.3
(*- annualised)
**- Sequential Growth

In a related development , the company recently acquired a 27.7% stake in German Remedies at a cost of Rs 1.49 bn. The acquisition was effectively valued at 2.4 times German Remedies sales. It also acquired perpetual rights to market five leading brands from Asta (one of the promoter of German Remedies). The financing of the same would be done through a mix of debt (Rs 2,000 m) and internal accruals. The company expects to leverage this acquisition to enter high margin therapeutic segments like respiratory, gynaecology and oncology, where German Remedies has a strong presence.

Particulars Cadila Sun Pharma Cipla
CMP (Rs.) 101 550 1,127
Sales (In Rs. Mn) 5,088 6,132 10,477
Growth (YoY) 6.5% 28.1% 38.0%
Operating Profit Margins 14.5% 24.6% 20.6%
P/e (FY 2001) (x) 9.3 19 38
Market Capitalisation (In Rs Mn) 6,060 24,853 67,577
Market Cap/Sales (x) 1.2 4.1 6.5

At the current market price of Rs 101, the stock is valued at 9.3 times its FY01 earnings and 1.2 times its current market capitalisation to sales. The prospects of the company would depend on how fast the ambitious acquisitions pays off. The company also needs to gear up growth, particularly given the fact that its peers like Sun Pharma are growing at much faster rates.

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