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Cadila Healthcare: Fuelled by exports - Views on News from Equitymaster
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Cadila Healthcare: Fuelled by exports
May 14, 2009

Performance summary
  • Topline grows by 26% YoY during the year primarily led by the growth in exports to emerging markets, US, France and also due to the strong growth from the Nycomed JV.
  • Operating margins improve by 1% due to reduction in purchase of traded goods (as percentage of sales).
  • Bottomline grows by 16% YoY during FY09, which is lower than the growth in operating profits due to forex losses reported during the year as against forex gains in FY08. Excluding this impact from both the periods, bottomline registers a strong 30% YoY growth.


Financial performance: A snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 5,615 7,234 28.8% 23,229 29,275 26.0%
Expenditure 4,498 5,743 27.7% 18,647 23,217 24.5%
Operating profit (EBDITA) 1,117 1,492 33.5% 4,582 6,058 32.2%
EBDITA margin (%) 19.9% 20.6% 19.7% 20.7%
Other income 15 43 192.6% 103 204 98.1%
Interest (net) 108 440 307.7% 522 978 87.2%
Depreciation 225 314 39.5% 969 1,118 15.4%
Profit before tax 799 781 -2.3% 3,194 4,165 30.4%
Exceptional items - (223) (69) (241)
Forex loss/(gain) 47 (129) (109) 227
Tax 201 158 -21.1% 613 666 8.7%
Profit after tax/(loss) 552 529 -4.1% 2,621 3,032 15.7%
Net profit margin (%) 9.8% 7.3% 11.3% 10.4%
No. of shares (m) 125.6 136.4
Diluted earnings per share (Rs) 22.2
Price to earnings ratio (x) 14.7

What has driven performance in FY09?
  • Cadila’s topline for the year registered a robust 26% YoY growth driven by growth in exports to emerging markets, US, France and also due to the strong growth from the Nycomed JV. While revenues from the emerging markets recorded a splendid 81% YoY growth, US and Brazil posted strong growth rates of 55% YoY and 32% YoY respectively. As far as the US is concerned, the company filed 19 ANDAs during the year taking the total number of ANDA filings to 92 out of which 43 have been approved so far. Most of the products are in the injectibles space, which is a niche area with relatively lesser competition and price erosion.

  • The French business also did well during the year and posted a 20% YoY growth led by the launch of 10 new products and strengthening the position of its key products. The Brazil business reported growth of 32% YoY with the launch of 4 new in-licensed products in the branded space. The company made two acquisitions during the year namely Laboratories Combix and Simayla Pharmaceuticals, which enabled Cadila to foray into Spain and South Africa respectively. While revenues from the domestic market grew by 10% during the year, sales from the Nycomed JV clocked an impressive 50% YoY growth.

  • The consumer healthcare business posted a healthy 27% YoY growth during the year. The consumer business of Cadila was integrated with Carnation to form a separate listed company Zydus Wellness Ltd.

  • The WHO approved Cadila’s rabies vaccine ‘Lyssavac N’ for purchase by various United Nations Agencies. With this, Cadila became the first Indian pharma company and the second pharma company in the world to receive the WHO accreditation for rabies vaccine. Currently, the group produces 3 m doses of rabies vaccine in the world.

  • Operating margins improved by 1% during the year largely owing to a reduction in purchase of traded goods (as percentage of sales). The bottomline grew by 16% YoY and was lower than the 32% YoY growth in operating profits due to forex losses during this year as against forex gains in the corresponding period last year. Thus, if one excludes this impact during both the periods, net profit growth stood at a much better 30% YoY duly aided by the surge in other income.

What to expect?
At the current price of Rs 328, the stock is trading at a multiple of 8.6 times our estimated FY11 earnings. Going forward, we expect Cadila's growth to be driven by increasing scale of its US and French generics businesses and a ramp up in the profitability of the French business. Strong performances by the consumer healthcare and contract manufacturing businesses are also expected to contribute to Cadila's overall growth going forward.

The patent expiry of the drug 'Protonix' has considerably reduced revenues and profitability from this JV. In a bid to rectify this, Cadila has extended the scope of the JV by undertaking to manufacture 18 APIs over a period of 4 years. Besides this, the JV that it has inked with Hospira, is also expected to enhance revenues and profits going forward. Commercial production from the Hospira JV is expected to commence in the first quarter of FY10. However, pricing pressure in the global generics market, volatile foreign currency movements and any inability on the part of Cadila to grow its profits after the patent expiry of ‘Pantoprazole’ are the key challenges that Cadila faces. Overall, we maintain our positive view on the stock.

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