Cadila Healthcare 4Q FY11: Strong results led by substantial performance in JV:: Standard Chartered Research,

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 Strong results led by substantial outperformance in
Hospira JV.
 Revenue growth 13% higher than estimates with
incremental qoq sales of Rs1bn in Hospira JV due to
generic docetaxel.
 Ex one-time bonuses, net profit growth of 37% despite
higher material costs due to adverse mix and cost
pressures in Zydus Wellness.
 Increase estimates 4-6%; Hospira JV sales to be lower
in 1Q FY12 due to anticipated aggressive new launches
in docetaxel.
 Maintain OUTPERFORM and PT of Rs925.



Strong results. 4Q FY11 results were strong, with net
revenue of Rs12.2bn (ex forex income, 42% yoy growth),
higher than our estimate of Rs10.8bn, largely due to sharp
outperformance in Hospira JV (revenue Rs1bn higher than
estimate). EBITDA (ex Rs510m one-time staff bonus) at
Rs2.7bn (33% yoy growth) was 28% higher than estimate of
Rs2.1bn with flat qoq margin due to higher material costs
mainly due to mix and higher costs in Zydus Wellness. PAT
(ex staff bonuses and forex) was Rs2bn (37% yoy growth)
against our estimate of Rs1.4bn.
Strong growth in all key verticals. Domestic formulation
grew 23% yoy (vs est. of 18%) to Rs3.6bn. US business
grew 51% yoy and 18% qoq despite only three new
launches in 4Q. Zydus Wellness growth was 22% yoy while
Brazil grew 24% yoy. Hospira JV growth was substantially
higher at Rs1.3bn (against Rs366m in 3Q FY11), with
incremental sales largely in docetaxel in US, in our view.
QoQ Hospira Speciality Injectibles sales is up US$53m and
Hospira indicated 30-35% market share in docetaxel, in the
absence of anticipated competition.
Increase earnings to factor higher growth in verticals.
We have revised our FY12/13 estimates 4-6% higher to
factor in higher domestic formulation growth and Hospira’s
better performance. Hospira indicates additional competition
for docetaxel with sharp price competition in 2Q CY11,
which limits sequential growth for JV, in our view. We
expect overall revenue growth of 15% in FY12, with
potential raw material pressure in Zydus Wellness JV for a
few quarters.
Maintain OUTPERFORM. Maintain PT of Rs925 (Rs875
earlier) based on 18x FY13 EPS. Key triggers include
higher value additive launches from US pipeline and
potentially superior upsides from partnerships.


Other key highlights of call
 Launched 60 products in domestic market (including 24 for first time) in FY11. Field force of
4,500 people (similar to 3Q FY11). Target growth rate for FY12 for business is above 15%
(excluding contribution from Bayer JV).
 Bayer JV for India to launch a basket of Bayer products in Women Healthcare, Diagnostics,
Oncology and CVs, with option to also launch branded generics.
 Launched 11 new products in US (4 Day 1 launches) and filed 24 ANDAs in FY11. Have
filed for 2 ANDAs for pain patches, 4 parenterals and 2 Nasal filings in FY11. Currently 65
pending approvals and 41 products in market. Target to file 15-20 ANDAs in FY12 (with 4-5
limited competition filings) and targeting launch of at least 10 products in US.
 Hospira JV sales (Cadila’s share) of Rs1.3bn in 4Q FY11 with profits of Rs912m with profit
margin of 68%. For full FY11, Hospira sales of Rs2.1bn with profits of Rs1.27bn (margin of
59%).
 EU sales to moderate in FY12, with France growth to be marginal and strong growth in
Spain. 33 new approvals in EU (cumulative 67 approvals) out of total basket of 116
products. Spain has 19 approvals (not yet launched) with one product being sourced from
India (out of three site transfers).
 7 dossiers filed in Brazil in FY11. Total basket includes 64 products filed with 23 approvals
and 16 launches. Growth in generics at 25% with branded generics growth of 15%. To
launch in Mexico in FY12.
 Forex cover of US$93m covering exports till Mar -12 at average rate of Rs47-48. Most
exports outside EU sales are in US$.
 Gross debt of Rs10.97bn, flat as compared to March FY10. Cash (and equivalents) of
Rs2.95bn.
 Capex of Rs4.57bn in FY11 as against Rs3.25bn in FY10. Target capex of Rs5bn for each
of FY12/13, largely for increased capacities in formulations and vaccines and to fund
biotech and R&D.
 Reiterate target to achieve US$3bn by 2015. As per company this growth will be organic.
Company is scouting for inorganic opportunities in key markets like India.
 Tax rate to be maintained at 15% in FY12, despite potential MAT tax for SEZ.