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Cadila Health.: Profits take a beating

Aug 7, 2013

Cadila Healthcare has announced its 1QFY14 results. The company has reported 6% YoY growth in sales and muted growth of 0.4% in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 6% YoY during the quarter. Most of the segments report muted growth.
  • Operating margins decline by 5% during the quarter due to increase in overall operating costs.
  • Bottomline increases marginally by 0.4% YoY, inspite of decline in interest costs and taxes for the quarter.

Financial performance: A snapshot
(Rs m) 1QFY13 1QFY14 Change
Net sales 15,161 16,075 6.0%
Other operating income 783 296 -62.2%
Expenditure 12,370 13,513 9.2%
Operating profit (EBDITA) 3,574 2,858 -20.0%
EBDITA margin (%) 22.4% 17.5%  
Other income 95 125 31.8%
Interest (net) 572 278 -51.3%
Depreciation 434 466 7.2%
Profit before tax 2,663 2,239 -15.9%
Tax 654 203 -68.9%
Minority Int 61 80 30.1%
Profit after tax/(loss) 1,948 1,956 0.4%
Net profit margin (%) 12.2% 11.9%  
No. of shares (m)   205.0  
Diluted earnings per share (Rs)   32.0  
Price to earnings ratio (x)*   23.0  
*based on trailing 12 months earnings

What has driven performance in 4QFY13?
  • The topline of Cadila Healthcare registered a 6% YoY growth during the quarter as most of the segments reported muted growth.

    Revenue break-up
    (Rs m) 1QFY13 1QFY14 Change
    Formulations 5,818 6,252 7.5%
    API 108 200 85.2%
    Consumer & Others 1,528 1,644 7.6%
     - Consumer products 1,033 1,150 11.3%
     - Animal health & others 495 494 -0.2%
    Total domestic (i) 7,454 8,096 8.6%
    Formulations 5,952 6,268 5.3%
     - North America (US) 3,592 3,874 7.9%
     - Europe 855 927 8.4%
     - Brazil 644 519 -19.4%
     - Japan 139 122 -12.2%
     - Emerging markets 722 826 14.4%
    APIs 650 658 1.2%
    Animal Health 116 130 12.1%
    JVs 1,295 1,310 1.2%
    Total exports (ii) 8,013 8,366 4.4%
    Grand Total (i+ii) 15,467 16,462 6.4%

  • The domestic formulations business witnessed muted growth of 7.5% YoY growth during 1QFY14. This was due to disruptions caused by stockists on back of implementation of the new pricing policy. The company remains cautious on growth atleast for 1HFY14 on the back of these disruptions. However, during the second half, the company expects domestic business to witness growth of 15%. The pricing policy will impact approx. Rs 900 m of the domestic sales. Company had launched 20 new products of which 5 were launched for the first time in India. Zydus Wellness recorded 11.5% YoY during the quarter. Going forward, the company expects growth of 15-18% from this segment on the back of new launches. While APIs witnessed robust growth of 85% for the quarter, sales from the animal health segment remained flat. Cadila remained confident in achieving above market growth in the long run.

  • The US business recorded an unexciting growth of 7.9% YoY during the quarter. This was due to lack of new product approvals. The company has revised its guidance for launches in the US to 8-9 from 20 earlier and hence growth in FY14 will remain subdued. However, Cadila has approx. 101 products pending for approvals of which 19 ANDAs are filed for partners. From its Nesher portfolio, Cadila expects the launch of two more products in FY14. Europe grew by 8.4% YoY on the back new launches and better growth in France and Spain. Brazil continued to witness pressures and witnessed decline in revenues by 19% for the quarter. This was because the company was not able to get new approvals. The company has 62 products awaiting approval from this geography. Secondly, sales were also impacted on the back of increase in the interest rates in Brazil. Due to this stockists in Brazil have brought down their inventory levels from 75 days to 45 days. In Mexico, the company started its operations during the quarter with the launch of two products.

  • JVs witnessed weak growth of 1.2% YoY for the quarter. Company expects a ramp up in this segment with the launch of new products.

  • Operating margins declined by 5% during the quarter due to increase in overall operating costs. This was on account of increase in R&D expenses, lower margins from Hospira JV, forex loss and lower US approvals. Going forward, the company expects improvement in margins. The R&D expenses will also remain flat for FY14 as the company has incurred large part of expenses in the past quarters.

  • Bottomline increased marginally by 0.4% YoY, inspite of decline in interest costs and taxes for the quarter. The tax rate for the quarter was 9.1%, however, the effective rate will be at 15% for FY14.

    Key Highlights

  • Guidance: Cadila might revise its guidance of US$ 3 bn till FY16 on the back of rupee depreciation. This is because when the company had decided its target, the rupee was hovering at around Rs 45 per dollar. However, more clarity will be given in 2HFY14 on this front.
  • Hospira JV has signed new products.
  • Transmerdals facility: As scheduled, USFDA inspection is ongoing on this facility.
  • Debt: As on date, Cadila has debt of Rs 25.5 bn.
  • Capex: Cadila is looking to incur capex of Rs 5.5-6 bn in FY14.

What to expect?

At the current price of Rs 740, the stock is trading at a multiple of 14 times our estimated FY15 earnings. Cadila's growth going forward is highly dependent on the product approvals in various geographies. It is evident from the company's performance in previous quarters that the lack of approvals has resulted in a muted performance for the company. Having said that, the company has built up a lucrative product pipeline and hence we expect revenues to ramp up going forward. Cadila remains positive in achieving above market growth rate in the domestic market.

Overall, we have a Hold rating on the stock from a 3 years perspective. We shall update our research report with financials for FY16 by the end of August.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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Jun 25, 2021 03:35 PM


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