Cadila Healthcare's Q3FY19 results (Neutral) - Strong US show drives beat
Q3FY19 result highlights
- Cons revs at Rs35.1bn (+24%/11% yoy/qoq) were above our est of Rs34b led by higher revenues from US at $268m vs est of $243m ($188mn in Q2). Mgt attributed to Androgel AG supplies (1/3rd of qoq growth) along with growth in base business (minimal price erosion qoq) and new launches. We estimate ~$50m of AG sales vs our est of $40m for the quarter.
- India revs were sharply below at Rs8.5 bn(-8%yoy) vs est of Rs9.9bn led by a significant restructuring of the India business.
- GMs came higher at 61.2% (66.1% in Q2) vs est 60.2% likely due to better base business profitability. SGA also came higher at Rs8.6bn (+13% qoq) vs est of Rs8bn despite flat R&D exp of Rs2.64bn.
- EBITDA came higher at Rs8.4bn (Rs6.9bn in Q2) vs est of Rs7.8bn
- Interest cost was high at Rs455mn (est Rs250mn) while tax rate came low at 23.6% vs est of 25%. PAT stood higher at Rs5.1bn vs est of Rs4.8bn.
- India – Restructuring impact is likely to continue into Q4 also with the business normalizing from Q1FY20 onwards. Aim to grow 1.25x market growth from thereon over the next 5 years.
- US – Launched 37 ANDAs in 9mFY19 including 15 in Q2. Expect gExelon transdermal patch approval in Q4. Guides to 40-60 launches in FY20 also. Remain positive on outlook for US business.
- Net debt – Post Heinz acquisition – Rs70bn. Will continue to look for inorganic growth opportunities in the US
Key positives: Higher US sales; higher EM sales
Key negatives: Lower domestic sales; higher interest costs
Impact on financials: We have broadly maintained our estimates
Valuations & view
Cadila has begun to leverage the R&D investments made over the past several years as reflected in the receipt of a phenomenal ~80 ANDAs over the last 15m or so including multiple niche approvals. While the guidance of ~50 new product launches in FY19 and FY20 each is positive, Cadila has struggled to achieve meaningful growth on its high FY18 base. While the Androgel AG launch has boosted H2FY19 US growth, the sustainability of the same from Q1FY20 is uncertain. Domestic business restructuring has added volatility to the growth outlook of this segment for the near term. Additionally, the balance sheet is significantly levered post the Heinz India business acquisition adding to the near term concerns. Post the high FY18 base, we estimate 5% CAGR PAT growth over FY18-21E. Given muted growth outlook and stretched balance sheet, we maintain Neutral rating.
Cadila Healthcare Limited is an India-based pharmaceutical company. The Company's subsidiaries include Zydus Wellness Limited, Windlas Healthcare Pvt Ltd, Liva Pharmaceuticals Limited, Biochem Pharmaceutical Industries Limited, Zydus Technologies Limited, German Remedies Limited, Dialforhealth India Limited, Dialforhealth Unity Limited and Dialforhealth Greencross Limited, among others.
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