CLSA: buy Cadila Healthcare:: Play on domestic market

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Cadila Healthcare:: Play on domestic market


Cadila remains one of most attractive picks in the Indian pharma space
led by improving growth outlook and reasonable multiples. We see strong
drivers for Cadila’s domestic as well international businesses. With a
superior core earnings growth and return ratio profile, we believe Cadila’s
would rerate towards large cap pharma names. We have revised our
target price to Rs935/share based on 20x FY13CL core earnings
considering 24% EPS cagr over FY10-13CL.

Strong presence in lifestyle disorders
Cadila has substantial market share in chronic therapies like cardiovascular,
anti-diabetes and gastro-enterology in the domestic market. Its consumer
business (Zydus Wellness) is also oriented towards similar segments. We
expect continued momentum in domestic growth as new launches and
marketing efforts pay off. We incorporate a 16.2% cagr in domestic
formulations and expect the company to do better.
Superior core earnings growth
Cadila has delivered 37% cagr profit growth over last five years (FY05-10)
much higher than large cap peers like Cipla, Dr Reddy’s, Ranbaxy and Sun
Pharma. We expect Cadila to sustain its growth trajectory and deliver 24%
profit cagr over FY10-13.

One of the highest return ratios
The management has brought about strong improvement in RoE over the last
three years by ensuring a quicker turnaround of entities acquired over recent
years thereby enhancing profitability and return ratios. Cadila’s RoCE and
RoEs are clearly one of the highest in the pharmaceutical industry. We expect
the trend to continue as domestic growth improves and some of other
international businesses become profitable (Brazil, South Africa).

Valuations catching up with larger names
While Cadila Healthcare has been one of the best performers over the last
year, we expect rerating on the stock to continue as it consistently delivers
strong earnings growth. We have revised our target price to Rs935/share
based on 20x FY13CL earnings. A large proportion business from India
(c.55%) lowers the risks from currency fluctuations. Highly profitable Hospira
joint venture continues to ramp up and will add strongly to earnings growth
over the coming years. Maintain BUY.