MOSL: CADILA HEALTH (BUY)- In-line results-approvals to pick-up in FY18

​Cadila Health: In-line results; approvals to pick-up in FY18

(CDH IN, Mkt Cap USD6.8b, CMP INR444, TP INR510, 15% Upside, Buy)

• Cadila's 4QFY17 net revenue was largely flat YoY. EBITDA margins came at 18.7% (vs our expectation of ~20%). Miss in EBITDA margin is due to high R&D at 9% of sales (vs normailized rate of ~7%). Reported PAT came atINR3.8bn (14% above estimate due to lower tax rate). For FY17 sales, EBITDA and PAT stood at INR94.3b (-3.3%YoY), INR19b (-17%YoY) and INR14.5b (-8%YoY) respectively.
  
• US grew sequentially; India outpaced industry growth: US business grew 2% YoY and 11% QoQ to INR9.9b. Sequential pick-up in US sales is attributed to pick-up in approvals, sales from sentynl acquisition (our est of >USD10m) partially offset by base business price erosion of ~USD8-10m sequentially. The company's India business recorded growth of 11.1% YoY in 4Q. Management expects domestic business to grow at low teens in FY18E.
  
• US business on a high growth trajectory: Post successful resolution of the Moraiya facility, we expect ~80 ANDA approvals until FY19 for CDH. Around ~50% of these are expected to come from the Moraiya facility and the rest from Baddi and SEZ facilities. Driven by these approvals and the contribution from the acquisition of Sentynl, we expect US sales to grow at ~30% CAGR till FY19. Strong launch momentum, coupled with limited competition launches (like Lialda), should drive significant margin improvement (expect FY19 EBITDA margins to be >24%), in our view. Also, CDH will save remediation cost of USD5-10m post Moraiya resolution.