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Cadila Health.: Exports pack a punch
Oct 19, 2010

Cadila Healthcare has announced its 2QFY11 results. The company has reported 18% YoY and 31% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 18% YoY during the quarter led by growth in both the domestic and exports businesses.
  • Operating margins improve marginally by 0.2% led by a fall in purchase of traded goods and other expenditure (as percentage of sales).
  • Bottomline grows by 31% YoY during 2QFY11 due to reduction in interest costs, forex gains and absence of extraordinary expense.


Financial performance: A snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 9,458 11,167 18.1% 18,493 22,505 21.7%
Expenditure 7,401 8,718 17.8% 14,399 17,083 18.6%
Operating profit (EBDITA) 2,057 2,449 19.1% 4,094 5,422 32.4%
EBDITA margin (%) 21.7% 21.9%   22.1% 24.1%  
Other income 41 39 -6.3% 83 67 -19.3%
Interest (net) 206 179 -12.8% 435 403 -7.3%
Depreciation 311 304 -2.2% 607 618 1.8%
Profit before tax 1,581 2,003 26.7% 3,135 4,468 42.5%
Exceptional items (26) -   (35) -  
Forex loss/(gain) 25 (19) -174.3% 39 73 84.5%
Tax 176 254 44.6% 418 592 41.5%
Profit after tax/(loss) 1,354 1,768 30.6% 2,642 3,803 43.9%
Net profit margin (%) 14.3% 15.8%   14.3% 16.9%  
No. of shares (m)       136.5 204.7  
Diluted earnings per share (Rs)         31.6  
Price to earnings ratio (x)         21.6  

What has driven performance in 2QFY11?
  • The topline of Cadila Healthcare registered a healthy 18% YoY growth during the quarter driven by strong growth in its domestic and exports businesses. The 35% YoY growth in formulations exports was bolstered by the US which grew by 41% YoY. In the US, the company now has a total of 58 ANDA approvals. The cumulative ANDA filings stand at 115. The formulations business in Brazil registered a growth of 27% YoY. Zydus Wellness, the subsidiary of Cadila posted a 23% growth in sales during the quarter led by Sugar Free, Nutralite and Ever Yuth.

  • The domestic formulations business witnessed a growth of 19% YoY during 2QFY11. This was led by the existing products and the launch of 20 new products including line extensions. Further, the company’s JV (Zydus Nycomed) c0mmissioned its newly expanded API manufacturing facility. Thus, besides other APIs, this facility will now manufacture the active ingredient of ‘Pantoprazole’ for Nycomed.

  • Operating margins improved marginally by 0.2% during the quarter due to a fall in purchase of traded goods and other expenditure (as percentage of sales). The latter fell from 34.6% of sales in 2QFY10 to 34.1% in 2QFY11. Thus operating profits registered a growth of 19% YoY during the quarter. Growth in PBT was higher by 27% YoY due to reduction in interest costs. This coupled with forex gains and absence of extraordinary expense this quarter led to the 31% YoY growth in the bottomline.

What to expect?
At the current price of Rs 682, the stock is trading at a multiple of 14.9 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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