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Cadila Healthcare: Delivers on all fronts
Jul 28, 2010

Cadila Healthcare has announced its 1QFY11 results. The company has reported 26% YoY and 58% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 26% YoY during the quarter led by growth in both the domestic and exports businesses.
  • Operating margins improve by 3.7% led by a fall in purchase of traded goods and other expenditure (as percentage of sales).
  • Bottomline grows by 58% YoY during 1QFY11 due to strong performance at the operating level and reduction in interest costs.




Financial performance: A snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 9,035 11,338 25.5%
Expenditure 6,998 8,364 19.5%
Operating profit (EBDITA) 2,037 2,974 46.0%
EBDITA margin (%) 22.5% 26.2%
Other income 42 29 -32.0%
Interest (net) 229 224 -2.4%
Depreciation 296 314 6.0%
Profit before tax 1,554 2,464 58.6%
Exceptional items (9) -  
Forex loss/(gain) 14 92 548.9%
Tax 242 338 39.3%
Profit after tax/(loss) 1,288 2,035 58.0%
Net profit margin (%) 14.3% 17.9%  
No. of shares (m) 136.5 204.7  
Diluted earnings per share (Rs)   29.5  
Price to earnings ratio (x)   21.8  

What has driven performance in 1QFY11?
  • The topline of Cadila Healthcare registered a robust 26% YoY growth during the quarter driven by strong growth in its domestic and exports businesses. The growth in formulations exports was bolstered by the US which grew by 51% YoY. In the US, the company now has a total of 56 ANDA approvals. The cumulative ANDA filings stand at 113. API exports (excluding the Nycomed JV) registered a robust growth of 75% YoY. This was largely due to enhanced revenues from the drug ‘Clopidogrel’. Zydus Wellness, the subsidiary of Cadila posted a robust 36% growth in sales during the quarter led by Sugar Free, Nutralite and Ever Yuth. The company launched 2 variants of Sugar Free in the domestic market during the quarter.

  • The domestic formulations business witnessed a growth of 17% YoY during 1QFY11. This was led by the existing products and the launch of 30 new products including line extensions. As far as the emerging markets are concerned, Cadila entered into a strategic pact with Abbott to license 24 branded generics in 15 key emerging markets.

  • Operating margins improved by 3.7% during the quarter due to a fall in purchase of traded goods and other expenditure (as percentage of sales). The latter fell from 34.8% of sales in 1QFY10 to 33.7% in 1QFY11. Thus operating profits registered a growth of 46% YoY during the quarter. Led by the strong performance at the operating level and reduction in interest costs, the bottomline grew by 58% YoY.

What to expect?
At the current price of Rs 645, the stock is trading at a multiple of 13.8 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, strong performances by the consumer healthcare and 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. Thus, while we are positive about the growth prospects of the company from a long term perspective, current valuations ResearchPro subscribers can view latest updates here do not leave much on the table for investors.

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