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Cadila Healthcare: Growth across geographies - Views on News from Equitymaster
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Cadila Healthcare: Growth across geographies
Jul 31, 2009

Performance summary
  • Topline grows by 27% YoY during the quarter primarily led by the growth in exports to emerging markets, US, and also due to sales from the new JV with Hospira.
  • Operating margins remain stable as a rise in other expenditure and purchase of traded goods is offset by a fall in raw material and staff costs.
  • Bottomline grows by 33% YoY during 1QFY10, and is bolstered by the strong performance at the operating level and higher other income.


Financial performance: A snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 7,140 9,035 26.5%
Expenditure 5,524 6,998 26.7%
Operating profit (EBDITA) 1,617 2,037 26.0%
EBDITA margin (%) 22.6% 22.5%  
Other income 16 42 167.1%
Interest (net) 161 229 42.4%
Depreciation 246 296 20.5%
Profit before tax 1,226 1,554 26.8%
Exceptional items - (9)  
Forex loss/(gain) 132 14 -89.3%
Tax 123 242 96.6%
Profit after tax/(loss) 971 1,288 32.7%
Net profit margin (%) 13.6% 14.3%  
No. of shares (m) 125.6 136.4  
Diluted earnings per share (Rs)   26.7  
Price to earnings ratio (x)   16.7  

What has driven performance in 1QFY10?
  • Cadila’s topline for the quarter registered a robust 27% YoY growth driven by growth in exports to emerging markets, US, France and also due to sales from the new JV with Hospira. While revenues from the emerging markets recorded a splendid 86% YoY growth, US grew strongly by 81% YoY respectively. As far as the US is concerned, the company received approvals for 6 ANDAs during the quarter taking the total number of US ANDA approvals to 48. Most of the products are in the injectibles space, which is a niche therapeutic area with relatively lesser competition and price erosion. In Europe, sales grew by 39% YoY and the company launched 4 new products in the French generics market during the quarter. Further, in order to compensate for the likely decline in revenues from the Nycomed JV, Cadila had formed another JV with Hospira to manufacture oncology injectibles. This JV began commercial operations in May 2009 and posted sales of Rs 468 m.

  • The consumer healthcare business posted a healthy 28% YoY growth during the quarter and the company launched an extensive skincare range for men under the Everyuth umbrella. The domestic formulations business witnessed a decent growth of 13% YoY led by the existing products and the launch of 17 new products during the quarter.

  • Operating margins remained stable during the quarter as the rise in other expenditure and purchase of traded goods was offset by the fall in raw material and staff costs (as percentage of sales). Thus operating profits registered a growth of 26% YoY in tandem with the growth in sales. Led by the strong performance at the operating level, the bottomline grew by 33% YoY. Having said that, what also contributed to the growth in net profits were lower forex losses during this quarter (Rs 14 m) as compared to the corresponding quarter (Rs 132 m) last year. Thus, on excluding this impact, the growth in net profits was 19% YoY, which was lower than the growth in operating profits due to a surge in tax expenses, which nearly doubled during the quarter.

What to expect?
At the current price of Rs 445, the stock is trading at a multiple of 9.5 times our estimated FY12 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 custom manufacturing businesses are also expected to contribute to Cadila's overall growth going forward.

In a bid to bolster sales from the Nycomed JV, 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, which started commercial operations during this quarter, is also expected to enhance revenues and profits going forward. 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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