MOSL: CADILA HEALTHCARE (Buy)-Weak 1QFY18, but expect strong recovery going forward

​​Cadila Healthcare: Weak 1QFY18, but expect strong recovery going forward

(CDH IN, Mkt Cap USD6.8b, CMP INR483, TP INR555, 15% Upside, Buy)

• CDH’s 1QFY18 net revenue declined ~4% YoY to INR21.9b (~17% miss). Weak revenue can be ascribed to a decline of ~19% YoY in India business and ~9% in EM business. EBITDA margin came at ~12.6% v/s 22.9% in 1QFY17 and 18.7% in 4QFY17. Adjusted for GST impact, EBITDA margins should have been 18% (v/s est. of ~20%). PAT declined 61% YoY to INR1.4b. We expect a strong recovery in revenue and margins, led by channel refilling in India and key launches in the US.
• Recovery in India business expected; key launches to drive US performance: Post a weak 1Q for the domestic market, CDH expects a strong recovery in the coming quarters led by channel refilling. US business increased 13.8% YoY (-2% QoQ) to INR9.7b. We expect strong growth in the coming quarters in the US business, driven by key launches such as gLialda and gAsacol HD (own generic). 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 the Baddi and SEZ facilities. Driven by these approvals and the contribution from the acquisition of Sentynl, we expect US sales CAGR of ~30% until FY19.