Cadila Healthcare: Give ‘buy’ rating with TP of Rs 481

By: |
February 11, 2021 1:00 AM

The q-q decline was owing to inventory correction for some of the products, according to the management

US recorded revenues at $217million, a decline of 13 million q-q and $16million below our estimate. (Representative image)US recorded revenues at $217million, a decline of 13 million q-q and $16million below our estimate. (Representative image)

Cadila Healthcare reported 3QFY21 results on February, 5 2021. For third quarter, revenue came in at Rs38.0 billion, up 5% y-y, and in line with our estimate. The domestic formulation and consumer businesses recorded growth ahead of our estimates, and were negated by weaker-than-estimated sales in the US and API. Domestic formulations sales grew 21% y-y and was 10% ahead of our estimate. Growth is driven by increased Remdesivir sales, in our view. US recorded revenues at $217million, a decline of 13 million q-q and $16million below our estimate. The q-q decline was owing to inventory correction for some of the products, according to the management

Ebitda came in at Rs 8.1billion, up 21% y-y, and was 8% ahead of our estimate. Ebitda margin came in at 21.4%, up 286bp y-y and 164bp ahead of our estimate of 19.8%. The beat in ebitda was due to better-than-expected gross margins (better product mix) and lower-than-expected cost overhead. PAT came in at Rs 5.3billion, up 41% y-y and 16% ahead of our estimate, driven by higher ebitda, higher other income and lower-than- estimated tax rate.

Outlook. The domestic business 4QFY21 is likely to be adversely impacted by q-q decline in Remdesivir sales. In the US, sales are likely to largely remain flat q-q in 4QFY21F with potential single-digit growth in FY22F on back of 40+ product launches. The management expects eight-10 high-value launches in FY22. Our interaction with the company suggests potential increase in US growth rate in FY23F driven by product specific opportunities. In the near to medium-term Covid-19 vaccines and Saroglitazar are potential opportunities that are not factored into our estimates currently.

We have a ‘buy’ rating on CDH with FY22F target price of Rs 481. We value CDH based on 22.5x FY23F EPS of INR21.4. The stock currently trades at 22.7x and 22.2x FY22F and FY23F EPS of Rs 20.9 and Rs 21.4, respectively.

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