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MOSL: CADILA HEALTHCARE (Buy)-Domestic Formulations drive earnings; Comprehensive approach to sustain profitability

CADILA HEALTHCARE: Domestic Formulations drive earnings; Comprehensive approach to sustain profitability

(CDH IN, Mkt Cap USD7.8b, CMP INR564, TP INR670, 19% Upside, Buy)

 

• CDH’s 1QFY22 performance was in line with our expectations, led by strong growth in Domestic Formulations (DF), owing to its COVID-related product portfolio, but was offset to some extent by higher than expected price erosion in the US. Its in-licensing and niche product portfolio for the US are shaping up well, with benefits expected to accrue from FY23.
• We reduce our FY22E/FY23E EPS estimate by 5%/6% to reflect: a) higher price erosion in the US, b) expected competition in Mesalamine products, and c) margin expansion aided by cost optimization. We value CDH at 25x its 12-month forward earnings to arrive at our TP of INR670. We remain positive on CDH on account of: a) robust launch momentum in the US and DF, b) build-up of the complex product pipeline of own/in-licensed products, and c) completion of remediation at Moraiya. We maintain our Buy The vaccine opportunity in India is not built into our estimates and can provide a further upside, post approval.

 DF outperforms while the US underperforms in 1QFY22

• Sales grew 10.6% YoY to INR40.3b (est. INR41b), led by India/LatAm. India sales (50% of sales), comprising of DF and Consumer Wellness, rose 43% YoY to INR19.4b. Within India, DF sales grew 64% YoY to INR13.6b. LatAm/EM sales rose 17% YoY to INR2.8b (7% of sales). API sales grew 4% YoY to INR1.4b (3% of sales).