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Cadila: poor man's Cipla

Oct 23, 2000

Cadila Healthcare has also made its mark in the domestic pharmaceutical market thanks to the reverse engineering. The company was formed after the spilt in the partnership between the Patel and Modi groups. (The latter own Cadila Pharmaceuticals).

(Rs m)2QFQ002QFY01Change
Sales 1,286 1,450 12.8%
Other Income 3 4 33.9%
Expenditure 1,086 1,197 10.3%
Operating Profit (EBDIT) 200 253  
Operating Profit Margin (%)15.6%17.5% 
Interest 33 (5)-113.8%
Depreciation 11 41 274.5%
Profit before Tax 159 221 38.6%
Other Adjustments   
Tax 15 30  
Profit after Tax/(Loss) 144 191 32.3%
Net profit margin (%)11.2%13.1% 
Earnings per share*9.6812.80 
(annualised)   

At the time of the public issue, the company was positioned in the league of Cipla. However, the stock price performance has been pathetic, to say the least. The stock quotes at Rs 114 and shareholders have actually lost more than 50% of their capital if they had invested at the time of the IPO.

The company second quarter's performance has been satisfactory vis–a–vis the growth of the overall industry. Cadila's net sales are up by 12.8% and its net profit has grown by 32.3%. The growth in post tax profit has been lead mainly by the repayment of debt which has reduced the interest cost. (To be fair to the company it has managed to improve its operating margins also, but the reduction in interest has been a key driver of earnings growth.) This is because the company still has not deployed a part of its IPO proceeds. (Of the Rs 3.72 bn that Cadila received during the time of the IPO, the company has so far utilised Rs 2.72 bn.)

The company derives 21% from anti–infectives, 20% from gastrointestinals, 8% from cardiovascular, 10% from vaccines and 8% from anti–inflammatory. It's main brands include Ciprobid (a ciprofloxacin based anti–infective), Ocid (omeprazole based gastrointestinal), Oxalgin (diclofenac sodium based pain management) and Oriprim (trimethoprim based anti–infective).

The stock quotes at a multiple of 9 times FY01 annualised earnings. What seems to have hit the valaution of the stock is the negative perception of the management and long drawn courtroom drama pitting the two former partners of the group. (There are as many as three court cases between the two companies at various stages of progress in the courts including the Supreme Court.)

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