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Cadila: Exports drive growth again - Views on News from Equitymaster

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Cadila: Exports drive growth again
May 7, 2011

Cadila Healthcare has announced its FY11 results. The company has reported 25.6% YoY and 38.9% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grow by 25.6% YoY during the year primarily led by growth in the export business.
  • Operating (EBITDA) margins improve slightly by 0.2% with decrease in raw material expenses as a percentage of net sales.
  • Bottomline grows by 38.9% YoY during FY11, mainly due to reduction in interest costs, lower depreciation and forex gains.


Financial performance: A snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 8,466 12,129 43.3% 36,869 46,302 25.6%
Expenditure 6,572 9,851 49.9% 28,782 36,040 25.2%
Operating profit (EBDITA) 1,894 2,278 20.3% 8,087 10,262 26.9%
EBDITA margin (%) 22.4% 18.8%   21.9% 22.2%  
Other income 51 34.5 -32.4% 159.1 131.1 -17.6%
Interest (net) 158 189.8 20.1% 809.2 780.4 -3.6%
Depreciation 398 317.4 -20.3% 1,339 1,269 -5.2%
Profit before tax 1,389 1,806 30.0% 6,098 8,343 36.8%
Exceptional items - 0   -46.4 0  
Forex loss/(gain) 11.1 -160.1   12.2 -81.2 -765.6%
Tax 67.7 104 53.6% 740.7 1064 43.6%
Profit after tax/(loss) 1,310 1,862 42.1% 5,299 7,361 38.9%
Net profit margin (%) 15.5% 15.3%   14.4% 15.9%  
No. of shares (m)       136.5 204.7  
Diluted earnings per share (Rs)         34.73  
Price to earnings ratio (x)         25.2  

What has driven performance in FY11?
  • Cadila's topline for the year registered a robust 25.6% YoY growth driven by strong growth in its exports business. Both formulations and APIs exports did well to grow by 37% YoY and 18% YoY respectively. The growth in formulations exports was buoyed by 44% YoY growth in sales from the US market and 24% YoY growth in the emerging market. The consumer business, Zydus Wellness growth was moderated to 25% YoY.

  • The domestic formulations business witnessed a robust growth of 19% YoY. This was led by the existing products and the launch of 60 new products including line extensions during the year. 21 products out of the 60 new products were first-in-India.

  • Operating margins improved by 0.2% to 22.2% during the year due to a fall in raw material charges (as percentage of sales).

  • The modest improvement at the operating level, reduction in interest costs, depreciation and forex gains helped bottomline grow by 38.9% YoY much higher than its sales growth. As the life of certain intangible assets with the animal health subsidiary got over, the depreciation and amortization cost dropped 5% to Rs 1,269 m.

What to expect?
At the current price of Rs 875, the stock is trading at a multiple of 17.0 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, we expect the performance by the consumer healthcare business to stabilize near current growth rate. Also the 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 bottom line performance has been better than our estimates. That said, while we are positive about the growth prospects of the company from a long term perspective, we remain cautious at current valuations as the price does not leave much on the table for investors.

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