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Cadila Healthcare (CDH)
Pharmaceuticals
India business slows down for Cadila, downgrade to REDUCE. Even as Cadila
remains confident of maintaining growth in international finished dosage (ex Hospira
JV) in FY2012E (38% of sales) with at least 15-18% growth in US (ex Nesher), we
believe its India pharma/consumer sales will grow at below-market rates in FY2012E.
Cadila registered low primary pharma growth of 9-10% in July 2011 and as 2QFY12 is
a strong quarter seasonally, we believe it will not be able to beat industry growth rates.
We cut our FY2012-13E EPS by 3-5% primarily on lower India growth rate. Due to
overdependence on India which accounts for 45% of its sales, we expect the stock to
remain under pressure in the near term. Our FY2012-13E EPS remains 4-8% below
consensus. We downgrade to REDUCE with PT at Rs900 (was Rs1,045).
We revise FY2012-13E EPS downwards by 3-5% due to lower India pharma and consumer sales
We cut our FY2012-13E EPS due to (1) lower India pharma sales growth assumption at 12% from
14% earlier, and (2) lower consumer growth at 10% from 15% earlier. Cadila registered poor
primary growth rate of 9-10% in July 2011 and as 2QFY12 is a strong quarter seasonally in India,
we believe the miss this quarter will lead to below-market growth in FY2012E. As per our
discussions with the company, some of the key factors for this slowdown are (1) severe pricing
pressure in some of its key therapeutic segments such as CVS, gastro which account for around
40% of its sales, and (2) also volume slowdown in its key therapies.
US expected to report >15-18% sales growth in FY2012E
Cadila is confident of reporting at least 15-18% growth in US (20% of sales), despite no new
product approvals, based on ramp-up in market share from 11 launches in FY2011 and 3 in
1QFY12. Out of 67 approvals received YTD, Cadila has launched 43 products. Cadila ranks among
the top 3 players for 9 out of the top 10 products marketed in US. Cadila received approvals for
Pramipexole (US$632 mn) and Losartan (US$1 bn) in October 2010. Although these have 8-10
generics, Cadila hopes to grow base business sales (ex Nesher) in US based on (1) full-year sales
getting reported in FY2012E versus 5-6 months in FY2011, and (2) ramp-up in market share in
such recent launches. The company has responded to a US FDA warning letter and if there are no
further concerns raised, a resolution is expected in 9 months. We estimate US sales increasing to
US$265 mn in FY2012E (including US$15 mn from Nesher) from US$212 mn in FY2011.
Subdued operational gains from recent weakness in Rupee
Cadila has forex debt accounting for around 50-60% of its total debt; so it hedges its net
exposure. Cadila is hedged to the tune of 50% of its net exposure at rates varying 47-48, implying
limited operational gains from recent weakness in the Rupee in the near term.
We downgrade to REDUCE with PT at Rs900 (was Rs1,045)
We downgrade to REDUCE with PT at Rs900—20X (earlier 22X) FY2013E EPS of Rs45.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cadila Healthcare (CDH)
Pharmaceuticals
India business slows down for Cadila, downgrade to REDUCE. Even as Cadila
remains confident of maintaining growth in international finished dosage (ex Hospira
JV) in FY2012E (38% of sales) with at least 15-18% growth in US (ex Nesher), we
believe its India pharma/consumer sales will grow at below-market rates in FY2012E.
Cadila registered low primary pharma growth of 9-10% in July 2011 and as 2QFY12 is
a strong quarter seasonally, we believe it will not be able to beat industry growth rates.
We cut our FY2012-13E EPS by 3-5% primarily on lower India growth rate. Due to
overdependence on India which accounts for 45% of its sales, we expect the stock to
remain under pressure in the near term. Our FY2012-13E EPS remains 4-8% below
consensus. We downgrade to REDUCE with PT at Rs900 (was Rs1,045).
We revise FY2012-13E EPS downwards by 3-5% due to lower India pharma and consumer sales
We cut our FY2012-13E EPS due to (1) lower India pharma sales growth assumption at 12% from
14% earlier, and (2) lower consumer growth at 10% from 15% earlier. Cadila registered poor
primary growth rate of 9-10% in July 2011 and as 2QFY12 is a strong quarter seasonally in India,
we believe the miss this quarter will lead to below-market growth in FY2012E. As per our
discussions with the company, some of the key factors for this slowdown are (1) severe pricing
pressure in some of its key therapeutic segments such as CVS, gastro which account for around
40% of its sales, and (2) also volume slowdown in its key therapies.
US expected to report >15-18% sales growth in FY2012E
Cadila is confident of reporting at least 15-18% growth in US (20% of sales), despite no new
product approvals, based on ramp-up in market share from 11 launches in FY2011 and 3 in
1QFY12. Out of 67 approvals received YTD, Cadila has launched 43 products. Cadila ranks among
the top 3 players for 9 out of the top 10 products marketed in US. Cadila received approvals for
Pramipexole (US$632 mn) and Losartan (US$1 bn) in October 2010. Although these have 8-10
generics, Cadila hopes to grow base business sales (ex Nesher) in US based on (1) full-year sales
getting reported in FY2012E versus 5-6 months in FY2011, and (2) ramp-up in market share in
such recent launches. The company has responded to a US FDA warning letter and if there are no
further concerns raised, a resolution is expected in 9 months. We estimate US sales increasing to
US$265 mn in FY2012E (including US$15 mn from Nesher) from US$212 mn in FY2011.
Subdued operational gains from recent weakness in Rupee
Cadila has forex debt accounting for around 50-60% of its total debt; so it hedges its net
exposure. Cadila is hedged to the tune of 50% of its net exposure at rates varying 47-48, implying
limited operational gains from recent weakness in the Rupee in the near term.
We downgrade to REDUCE with PT at Rs900 (was Rs1,045)
We downgrade to REDUCE with PT at Rs900—20X (earlier 22X) FY2013E EPS of Rs45.
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