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Cadila (CADI.BO): Neutral on balanced risk reward; steady outlook
What’s changed
We raise our FY11E-FY13E net income estimates for Cadila by up to
11% on the back of improved growth expectations from the US
formulations business, joint venture with Hospira and margin
expansion.
As a result, we also raise our 12-month target price to Rs706 (from
Rs672), implying 9% potential downside. We maintain our Neutral
rating on the stock as we believe it is fairly valued at current levels.
Implications
Steady revenue CAGR: We maintain our thesis that Cadila is well
positioned to achieve strong revenue growth, and forecast 17%
revenue CAGR over FY11-FY13E driven by all-round growth across
US formulations, domestic business and joint ventures.
Improving exports profile; JV partnerships key differentiator: We
expect Cadila to register export revenue CAGR of 22% over
FY2011E-FY2013E, on the back of a broadening US product basket,
increased penetration in Europe and upcoming product launches
from its JV with partner Hospira.
We expect its domestic revenue growth to achieve 13% CAGR over
FY2011E-FY2013E, below the sector average of mid-to-high teens,
on the back of increased competition from MNCs and other Indian
peers. That said, we expect Cadila to maintain its market leadership
position in the consumer healthcare products in the domestic
market and forecast revenue CAGR of 15% over FY11E-FY13E.
Bayer JV enhances domestic focus: Cadila recently announced a
50-50 joint venture with Bayer for the Indian market. We believe this
makes strategic sense for Cadila as it can utilize its marketing reach
in India to distribute Bayer’s innovative products.
Valuation
Our 12-month target price of Rs706 implies FY12E P/E of 17.2X,
which is at a 11% premium to the sector at 15.5X.
The stock currently trades at a premium of 21% on FY12E P/E of
18.9X and 16% premium on one-year forward EV/EBITDA of 13.1X,
respectively, versus its peers.
Key risks
Upside: Earlier than expected product approvals and launches;
Downside: Reduced JV contribution and profitability.
INVESTMENT LIST MEMBERSHIP
Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cadila (CADI.BO): Neutral on balanced risk reward; steady outlook
What’s changed
We raise our FY11E-FY13E net income estimates for Cadila by up to
11% on the back of improved growth expectations from the US
formulations business, joint venture with Hospira and margin
expansion.
As a result, we also raise our 12-month target price to Rs706 (from
Rs672), implying 9% potential downside. We maintain our Neutral
rating on the stock as we believe it is fairly valued at current levels.
Implications
Steady revenue CAGR: We maintain our thesis that Cadila is well
positioned to achieve strong revenue growth, and forecast 17%
revenue CAGR over FY11-FY13E driven by all-round growth across
US formulations, domestic business and joint ventures.
Improving exports profile; JV partnerships key differentiator: We
expect Cadila to register export revenue CAGR of 22% over
FY2011E-FY2013E, on the back of a broadening US product basket,
increased penetration in Europe and upcoming product launches
from its JV with partner Hospira.
We expect its domestic revenue growth to achieve 13% CAGR over
FY2011E-FY2013E, below the sector average of mid-to-high teens,
on the back of increased competition from MNCs and other Indian
peers. That said, we expect Cadila to maintain its market leadership
position in the consumer healthcare products in the domestic
market and forecast revenue CAGR of 15% over FY11E-FY13E.
Bayer JV enhances domestic focus: Cadila recently announced a
50-50 joint venture with Bayer for the Indian market. We believe this
makes strategic sense for Cadila as it can utilize its marketing reach
in India to distribute Bayer’s innovative products.
Valuation
Our 12-month target price of Rs706 implies FY12E P/E of 17.2X,
which is at a 11% premium to the sector at 15.5X.
The stock currently trades at a premium of 21% on FY12E P/E of
18.9X and 16% premium on one-year forward EV/EBITDA of 13.1X,
respectively, versus its peers.
Key risks
Upside: Earlier than expected product approvals and launches;
Downside: Reduced JV contribution and profitability.
INVESTMENT LIST MEMBERSHIP
Neutral
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