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Cadila Health.: Forex losses hit the net - Views on News from Equitymaster
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Cadila Health.: Forex losses hit the net
May 11, 2012

Cadila Healthcare has announced its 4QFY12 results. The company has reported 15% YoY growth in sales and a 3% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 15% YoY during the quarter led by growth in both the domestic and exports businesses.
  • Operating margins improve by 1.4% led by a fall in raw material and staff costs (as percentage of sales).
  • Bottomline falls by 3% YoY during 4QFY12 due to a surge in interest costs and tax expenses.


Financial performance: A snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 12,133 13,980 15.2% 46,306 52,633 13.7%
Expenditure 9,855 11,152 13.2% 36,044 41,795 16.0%
Operating profit (EBDITA) 2,278 2,828 24.1% 10,262 10,839 5.6%
EBDITA margin (%) 18.8% 20.2%   22.2% 20.6%  
Other income 35 176 409.6% 131 532 305.4%
Interest (net) 30 375 1164.0% 699 1,849 164.4%
Depreciation 317 391 23.1% 1,269 1,579 24.4%
Profit before tax 1,966 2,238 13.8% 8,425 7,942 -5.7%
Tax 104 436 319.5% 1,064 1,130 6.3%
Profit after tax/(loss) 1,862 1,801 -3.2% 7,361 6,812 -7.5%
Net profit margin (%) 15.3% 12.9%   15.9% 12.9%  
No. of shares (m)       204.7 204.7  
Diluted earnings per share (Rs)         33.3  
Price to earnings ratio (x)*         23.0  
*based on trailing 12 months earnings

  • The topline of Cadila Healthcare registered a healthy 15% YoY growth during the quarter driven by strong growth in its domestic and exports businesses. The US business recorded a growth of 29% YoY during the year. Excluding Nesher Pharma, growth stood at 18% YoY. The company filed 21 ANDAs and the cumulative ANDA filings now stand at 148. Revenues from Brazil grew by 10% YoY during the quarter while those from Mexico are expected to begin from FY13. Europe saw a growth of 8% YoY during the quarter. The company made 16 product launches in France out of which 6 were Day 1 launches. Japan did very well to grow by 24% YoY and the rest of the emerging markets grew by 5% during the quarter.

  • The domestic formulations business witnessed a robust growth of 38% YoY during 4QFY12. Excluding the Biochem acquisition, growth was still strong at 23% YoY. This was led by existing products and the launch of new products including line extensions. Zydus Wellness recorded a growth of 11% YoY during the quarter. This business had been facing rough weather over the past few quarters on account of competition and the company has been taking steps to bolster growth. The Animal Health business grew by 38% YoY during FY12. However, if one excludes the acquisition of Bremer Pharma, growth stood at 17% YoY.

  • Operating margins improved by 1.4% during the quarter due to a dip in raw material and staff costs (as percentage of sales). Thus operating profits registered a growth of 24% YoY during the quarter. Bottomline fell by 3% YoY during 4QFY12 due to a surge in interest costs and tax expenses. The company had incurred forex losses to the tune of Rs 900 m during the quarter. Out of this, Rs 400 m were accounted for in other expenditure (this resulted in other expenditure rising by 3.2% to 31.6% of sales). The balance is reflected in interest costs and hence the surge.

What to expect?
At the current price of Rs 765, the stock is trading at a multiple of 13.9 times our estimated FY14 earnings. Cadila's growth going forward will be driven by increasing scale of its US business and maintaining healthy growth in the domestic market. The JVs are also expected to contribute to overall growth. However, pricing pressure in the global generics market and slowdown of asny kind in domestic growth are key challenges for Cadila. After a couple of acquisitions, Cadila's margins dipped in FY12. However the synergy benefits should start flowing after a couple of quarters and the margins should improve again. Overall, we are positive on the stock from a long term perspective.

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