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

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Cadila: Exports drives growth again

Jul 20, 2011

Cadila Healthcare has announced its first quarter results for 2012 (1QFY12). The company has reported 9.9% YoY and 15.1% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by mere 9.9% YoY during the quarter due to slower growth in the domestic and the US market.
  • Operating margins (EBITDA) decrease by 1.9% due to increase in palm oil prices and employee cost.
  • Net profit grows by 15.1% YoY mainly due to reduction in interest costs and substantial increase in the other income.


(Rs m) 1QFY11 1QFY12 Change
Net sales 11,338 12,457 9.9%
Expenditure 8,364 9,433 12.8%
Operating profit (EBDITA) 2,974 3,024 1.7%
EBDITA margin (%) 26.2% 24.3%  
Other income 29 63 119.9%
Interest (net) 316 112 -64.7%
Depreciation 314 347 10.6%
Profit before tax 2,373 2,628 10.8%
Tax 338 285 -15.5%
Profit after tax/(loss) 2,035 2,343 15.1%
Net profit margin (%) 17.9% 18.8%  
No. of shares (m)   204.7  
Diluted earnings per share (Rs)*   36.2  
Price to earnings ratio (x)   25.9  

What has driven performance in 1QFY12?
  • Cadila's net sales for the quarter registered a mere 9.9% YoY growth. This was due to the sluggish growth in the domestic and the US market. The domestic market slowed from double digit growth to just 8%. The growth in the consumer division (15% of domestic sales) considerably slowed down to 4% as one of its plants was shut for two weeks. On the exports front, the growth was just 2% YoY. This was on the back of lower growth of 7% YoY in the US market and substantial de-growth in the emerging markets and API business.

  • Operating margins (EBITDA) decreased by 1.9% due to increase in palm oil prices and employee cost. Increase in employee costs has been a common element witnessed by the pharma industry in the last one year. For Cadila, the employee cost increased by 1.5% YoY (as a % of sales).

  • Net profit grew by 15.1% YoY mainly due to reduction in interest costs and substantial increase in the other income. Cadila's interest cost for the quarter decreased by 65% YoY giving boost to the profits. The other income also increased as Cadila booked Rs 446 m of licensing income on behalf of its Abbott deal.

What to expect?
At the current price of Rs 880, the stock is trading at a multiple of 17.1 times our estimated FY13 earnings. The domestic and the US market had a muted growth for this quarter. However, Cadila's growth will be only be driven by increasing scale of its US business and maintaining decent growth in the domestic market. Further we expect the benefits from its new manufacturing facility for the consumer healthcare business to help in increasing margins due to tax benefits. The JVs with different MNCs will continue to grow and is 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 sales and profit performance has not been up to the mark for the quarter. That said, we are positive about the growth prospects of the company from a long term perspective, but we remain cautious as the current price does not leave much on the table for investors.

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