Cadila Healthcare’s (Cadila) reported Q4FY19 performance was broadly in line with our estimates, led by continued momentum in US sales. But the India business was muted with lower industry growth and restructuring exercise undertaken by the company. Total revenues grew 15.3% year-on-year to `37.3 billion (I-Sec: `34.8 billion), led by higher US sales and consolidation of Heinz acquisition in Zydus Wellness. Adjusted Ebitda margin (ex-forex) contracted 420 bps y-o-y 21.4% (I-Sec: 22.4%) on high base. Adjusted PAT fell 20.6% to `4.5 billion. It expects strong launch momentum in the US (>35 in FY20) to continue, which would help sustain the high base of US sales, while the India business growth is likely to remain in single digit. Maintain ‘add’.
Consolidation of the Heinz acquisition contributed 7% to Q4FY19 revenue growth; ex-Heinz, growth stood at 8%. US revenues grew 1.5% y-o-y to $256 million led by AndroGel and other new launches despite reduction in sales of branded products and generic Lialda. The India business grew at a subdued 2.1% y-o-y owing to rationalisation of product portfolio for better profitability and effective inventory levels. Europe revenues declined 11.1% while Emerging Market revenues grew 7.1%. Consumer wellness grew 10% (ex-Heinz) and animal healthcare grew 11.1% y-o-y.
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Cadila witnessed Ebitda margin (ex-forex) contraction of 420 bps y-o-y to 21.4% on high base of generic Lialda, but came close to our estimate of 22.4%. Adjusted for one-off expenses of Rs 250 million, Ebitda margin stood at 22.0%. We expect the margin to remain stable at 21-22% in FY20-21E with flattish US sales and rise in R&D spend. India formulation sales grew by a tepid 2.3% y-o-y to `9.0 billion during the quarter. Cadila has undertaken portfolio reorganisation strategy as well as several steps to improve productivity, which affected the result. The firm has exited certain non-performing SKUs (158) and allocated resources to more rewarding geographies. It launched 53 new products in India during FY19 and is expected to launch 30-40 in FY20.
US formulation sales declined 5.8% quarter-on-quarter to $256 million on a high base due to Androgel AG. The company experienced 2-2.5% pricing pressure in the base business in Q4FY19.