Revise Cadila Health rating to ‘buy’ with TP of Rs 468

Published: March 28, 2018 2:47:54 AM

IMS data lists market size of gToprol at ~$700mn. According to Bloomberg, the market is currently dominated by Actavis (~45%) and Dr Reddy’s Labs (~23%).

cadila health, cadila health rating, cadila health stockCadila Healthcare (CDH IN) has received final approval for Metoprolol Succinate extended-release (ER) tablets (25, 50, 100 & 200mg), a generic version of Toprol-XL. (Reuters)

Cadila Healthcare (CDH IN) has received final approval for Metoprolol Succinate extended-release (ER) tablets (25, 50, 100 & 200mg), a generic version of Toprol-XL. Metoprolol succinate is a beta-blocker used to treat chest pain (angina), heart failure and high blood pressure. The product will be manufactured from the SEZ zone at Ahmedabad, Gujarat, and the company expects an immediate launch. IMS data lists market size of gToprol at ~$700mn. According to Bloomberg, the market is currently dominated by Actavis (~45%) and Dr Reddy’s Labs (~23%). On the other hand, Sandoz has discontinued the product and Wockhardt has withdrawn due to regulatory concerns. Given the product’s complexity, this could be interesting opportunity for Cadila. If we assume a 50% price erosion and ~15-20% market share, it could lead to a $45-50mn opportunity annually for Cadila. Our FY19-20 EPS estimates already factor in gToprol launch.

Cadila has 135 pending ANDA, including some high value, niche products — gPrevacid ODT and gExelon Patch (transdermal), which have a target action date (TAD) over the next 3-6 months. Further, its own generic launch of gAsacol by FY19 can provide further boost to profitability (higher gross margin of 70-75% vs 20-25% on the AG). We expect an additional R140 crore of EBITDA from the launch of gAsacol. This should offset the decline in gLialda sales over FY18-19. Management guides for 40 ANDA launches in FY19, which should help grow its base business and offset any price erosion.
We anticipate US revenue CAGR of 20% to $924mn over FY17-20E. Cadila reported strong 9M US sales, led by gLialda exclusivity and gTamilfu sales.

We believe momentum will continue into FY19, led by high value, niche launches like gToprol. Further, we expect several high value, new launches like gPrevacid ODT, generic version of Asacol HD and Exelon Patch along with 135 pending ANDA. The stock price has corrected by 15% in the past three months. At the CMP, it is trading at an attractive valuation of 17x FY20E P/E. We expect an EPS CAGR of 13% over FY18-20E with healthy return ratios of ~20%. We revise our rating to buy from Accumulate with an unchanged TP of Rs 468 based on 22x FY20E EPS of `21.6.

By: Elara Capital

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