Momentum to improve
Cadila Healthcare (Cadila) is awaiting clean chit from the US FDA for its
Moraiya facility, which will trigger new launches in the US market, while
the full impact of its acquisitions (Biochem & Nesher) will be reflected in
the current year. We believe multiple revenue streams, contract
manufacturing and diversified geographical reach will aid in sustaining its
revenues going forward. We downgrade our earnings (on account of lower
traction in Nesher) and price target and maintain our “BUY” rating on the
stock.
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Domestic Formulations – Growth in Excess of 15% (ex‐Biochem): Strong
growth in its key therapeutic segments i.e. Cardiac, Gastro Intestinal (GI),
Respiratory and Pain‐management in 2MFY13 signals the positive momentum
in this segment. We have factored 28.5% growth in FY13E due to inclusion of
Biochem (growth of 13%). Acquisition of Biochem was undertaken in order to
consolidate its position in the Anti‐infective segment.
US Business – Moraiya Facility Resolution & Likely Launch of Approved
Products to Provide Traction: The Moraiya facility overhang has acted as a
dampener for the US revenue scale‐up. Certain observations by the US FDA
post the inspection have been addressed. The clearance of the facility by the
US FDA will pave the way for 6‐7 new product launches. Launch of 10
approved products and 10 tentative approvals could also aid the US business.
Outlook & Valuation
Cadila Healthcare’s performance will be aided with Biochem revenues and
integration being reflected in the ensuing quarters. Though the US FDA
resolution will act as a positive event for the Company, the upsides have been
built into a large extent. We marginally downgrade our EPS at Rs. 37.3 and Rs.
47.3 for FY13E and FY14E, respectively due to lower traction in Nesher. We
downgrade our price target by 3.4% to Rs. 850 per share based on 18xFY14E
and reiterate our “BUY” recommendation on the stock.
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