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Near term headwinds
Notwithstanding Cadila’s strong long term prospects, we believe near
term growth faces headwinds from US FDA warning letter and a high
base emerging because of Taxotere. While we maintain our estimates, we
believe earning downgrades by street would result in pressure on the
stock in the near term. At 20x FY13 EPS, the stock leaves little scope for
appreciation. Pick up in domestic growth and launch of additional
products by Hospira joint venture would serve as positive triggers over
the coming quarters.
Management guides for pick up in domestic growth
Cadila’s 1QFY12 domestic growth was one of weakest in any quarter over last
four years. A part of this is due to up fronting of sales in 4QFY11 that was
done to achieve US$1bn guidance. The management guides for higher than
market average growth over coming quarters. Zydus Wellness reported flat
sales due to Nutralite facility shut down for two weeks and a margin reduction
for distributors across all products.
US growth looks difficult in wake of the warning letter
The US generic market has been a key business segment for Cadila in terms
of revenue growth while the profitability remains much lower than other
businesses. We believe this growth could come down over coming quarters as
fresh approvals become hard to come by while existing products face
competition and price erosion. Integration of Nesher in second half would add
US$10-15m in revenues for FY12 and help reported sales.
Taxotere setting a high base
Profit contribution from Hospira joint venture (while not disclosed this
quarter) likely sustained at high levels as Hospira maintains high market
share in Taxotere. However, this product contribution is likely to face decline
as more competitors gain approvals. At the same time, launch of additional
products by the JV should help manage some growth.
Rich valuations
With Cadila trading at c. 20x FY13 EPS, it leaves little scope for appreciation.
We believe that the company faces headwinds due to warning letter and with
Taxotere resulting in a high base for next year. We believe that the stock
could take a hit in the near term, while longer term pipeline remains strong.
While we maintain our estimates, we see the consensus would have to
downgrade estimates resulting in pressure on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near term headwinds
Notwithstanding Cadila’s strong long term prospects, we believe near
term growth faces headwinds from US FDA warning letter and a high
base emerging because of Taxotere. While we maintain our estimates, we
believe earning downgrades by street would result in pressure on the
stock in the near term. At 20x FY13 EPS, the stock leaves little scope for
appreciation. Pick up in domestic growth and launch of additional
products by Hospira joint venture would serve as positive triggers over
the coming quarters.
Management guides for pick up in domestic growth
Cadila’s 1QFY12 domestic growth was one of weakest in any quarter over last
four years. A part of this is due to up fronting of sales in 4QFY11 that was
done to achieve US$1bn guidance. The management guides for higher than
market average growth over coming quarters. Zydus Wellness reported flat
sales due to Nutralite facility shut down for two weeks and a margin reduction
for distributors across all products.
US growth looks difficult in wake of the warning letter
The US generic market has been a key business segment for Cadila in terms
of revenue growth while the profitability remains much lower than other
businesses. We believe this growth could come down over coming quarters as
fresh approvals become hard to come by while existing products face
competition and price erosion. Integration of Nesher in second half would add
US$10-15m in revenues for FY12 and help reported sales.
Taxotere setting a high base
Profit contribution from Hospira joint venture (while not disclosed this
quarter) likely sustained at high levels as Hospira maintains high market
share in Taxotere. However, this product contribution is likely to face decline
as more competitors gain approvals. At the same time, launch of additional
products by the JV should help manage some growth.
Rich valuations
With Cadila trading at c. 20x FY13 EPS, it leaves little scope for appreciation.
We believe that the company faces headwinds due to warning letter and with
Taxotere resulting in a high base for next year. We believe that the stock
could take a hit in the near term, while longer term pipeline remains strong.
While we maintain our estimates, we see the consensus would have to
downgrade estimates resulting in pressure on the stock.
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