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Cadila Healthcare: A
perfect medley
Diversified sources of growth from leadership position in India and
growing contribution from international operations
Hospira JV and niche opportunities in the US to offer material
upside with healthy margins; we forecast c30% net profit CAGR
for FY10-13
Initiate with an OW and a TP of INR1,085
Investment thesis
Cadila is the fifth largest formulation player in the
domestic market and it is also increasing its
participation in big emerging markets like Brazil
and South Africa.
The decline in the JV with Nycomed since the
expiry of pantoprazole has been offset by the
success of the Hospira JV. Deals with Abbott and
Bayer also offer long-term growth prospects and
could help the company achieve annual sales of
USD3bn by 2015.
Emerging leadership in many therapies in the
Indian market: Cadila has been a strong player
in the domestic market for years, and has attained
leadership positions in women’s health, CVS,
gastrointestinal, respiratory and vaccines. We
expect a FY11-13e domestic sales CAGR of
c19% on the back of additional investments and a
shift in the portfolio mix to chronic remedies.
US niche business growing, emerging markets
already a significant contributor: While the
company is a late entrant to the US, it is using a
different strategy to some peers by focusing on
niche filings, including parenterals, aerosols and
even transdermals. Its presence in Brazil and other
markets should benefit exports.
Target USD3bn sales by 2015: The company has
moved into several new areas that may generate
future growth, including biosimilars, vaccines and
NCEs. Additionally, the Abbott and Bayer deals
could materially contribute in the long term. Its
consumer business is expected to grow on the
back of new launches and existing leadership.
Healthy business mix and cash flows warrant
higher valuations: We estimate overall sales to
increase c20% over FY10-13e, with margin
improvement of c170bps. We forecast a net profit
CAGR of c30%, the best among peers. Our TP of
INR1,085 is based on 20x our FY13e EPS of
INR54.3. The key risks include a decline in Hospira
JV profitability and slower ramp-up in the US.
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