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MOSL: CADILA HEALTH (Buy)-Strong traction in the US drives earnings

Cadila Health: Strong traction in the US drives earnings

(CDH IN, Mkt Cap USD4.6b, CMP INR322, TP INR420, 30% Upside, Buy)

 

• Beat on all fronts: Cadila Healthcare's (CDH) revenue grew ~10% YoY to INR35.8b (v/s our est. of INR31b), largely led by 22% YoY growth in the US business (55% of sales) and strong ~84% YoY growth in Emerging Markets (~6% of sales). This was partially offset by ~8% YoY decline in domestic business - domestic formulations (DF) (~24% of sales). Gross margin declined by ~340bp YoY and ~430bp QoQ to 62.2%, mainly due to change in the product mix and lower DF sales. EBITDA margin also contracted by ~250bp due to lower GM and higher R&D spend (up ~100bp YoY as % of sales), which was partially offset by lower other expense (~220bp). Absolute EBITDA remained flat YoY at INR8.4b (v/s est. of INR7b). PAT declined by ~6% YoY to INR5.1b (v/s est. of INR4.2b) due to higher interest cost. For 9MFY19, sales stood at INR94.3b (+9% YoY), EBITDA at INR21.7b (+10% YoY) and PAT at INR13.9b (+17% YoY).
• Concall highlights: (1) Authorized generic (AG) launch of Androgel, additional sales of g-Tamiflu and new launches led US sales growth. (2) Price erosion in the US market was minimal sequentially. (3) CDH expects approval for g-Exelon in 4QFY19. (4) DF revenues were impacted due to portfolio re-organization/productivity improvement initiatives; it is expected back-on-track from 1QFY20 onwards. (5) MR productivity currently stands at INR4.5lac PCPM and is expected to increase to INR6lac PCPM in 2-3 years.