Cadila reported strong sales of R2,420 crore , up 10.9% y-o-y (down 1.3% q-o-q), mainly driven by US (up 19.6% y-o-y, 6.8% q-o-q), India (up 11.1% y-o-y, down 5.1% q-o-q) and other operating income of R86.60 crore (R69.80 crore last four quarter average). OPM expanded by 3.4 ppts y-o-y (contracted 1.4 ppts q-o-q) to 23.8% due to revenue mix, FX translation gains (R200 million) and absorbed higher R&D costs (9.8% vs. 7% in Q216).
All this, along with higher other income of R255 million, led to net income of R3.9 billion (up 38.2% y-o-y, flat q-o-q). Gross debt and net debt were at R24 billion and R13.8 billion by end of Q3FY16.
We expect base business to remain muted over next 2-3 quarters until the visibility of niche site transfers improve.
We are overweight on CADI in view of strong F18 growth driven by the US launches, IPR build up (bio-similars, lip aglyn) and reasonable valuations.
Potential Import Alert at Moraiya site is a risk to our thesis, however CADI expects this to be mitigated (for current and future business) over the next 12 months through site transfers.