MOSL: CADILA HEALTH (Buy)-Strong operating performance; key approvals awaited

Cadila Health: Strong operating performance; key approvals awaited

(CDH IN, Mkt Cap USD6.0b, CMP INR383, TP INR460, 20% Upside, Buy)

• Cadila’s (CDH) 4QFY18 revenue increased significantly by 31% YoY to INR32.5b (est. of INR30.7b). Gross margin improved ~410bp YoY to 66.7% (65.5% in 3QFY18). EBITDA rose ~88% YoY to INR8.7b (est. of INR7.3b), with margin expansion of ~810bp YoY to 26.8%. Improvement in the gross margin, along with a decrease in employee cost by ~100bp (as % of sales) and in R&D cost by ~340bp, led to overall margin improvement. Strong revenue growth, coupled with better margins, led to robust ~57% YoY growth in PAT to INR6.1b (est. of INR4.2b).
• Strong growth in US driven by key launches: US business grew ~67% YoY to INR16.4b, driven by Lialda and Tamiflu sales. Growth in US business was primarily led by FTF gLialda (and launch of Tamiflu), which is expected to witness competition with the launch from Teva. However, the company does not expect significant price erosion. CDH expects growth momentum in the US to continue, led by ramp-up in Lialda/Tamiflu and new product launches (including certain limited-competition products). It has also entered into an agreement with Medicure International to commercialize Zypitamag, its first 505 (b)(2) recently launched in the US. India formulation business grew ~5% YoY, and CDH expects double-digit growth in FY19.