EUR 120.00 For Business Accounts Only

MOSL: CADILA HEALTHCARE (Buy)-Superior product mix benefit offset by lower operating leverage

CADILA HEALTHCARE: Superior product mix benefit offset by lower operating leverage

(CDH IN, Mkt Cap USD3.9b, CMP INR271, TP INR317, 17% Upside, Buy)

 

DF sales growth improves; Better traction in US as well

• Cadila Healthcare’s (CDH) renewed strategy is aiding growth in the domestic formulation (DF) segment. Also, its ANDA launch engine remains strong, which in turn is improving growth prospects for the US market.
• We maintain our EPS estimates for FY20/FY21/FY22E. We remain positive on CDH on the back of (a) robust ANDA pipeline including complex products like transdermals, and (b) its changed strategy, which is delivering steady pick-up in DF growth. Reiterate Buy on attractive valuations. 

Overall performance in line with estimates

• 3QFY20 sales grew 1.7% YoY to INR36.4b (v/s est. INR34b), led by (a) US sales growth of 16% QoQ to INR16.7b (46% of sales), and (b) India branded formulation growth of 9.6% YoY.
• Gross margin stood at 65.8% and expanded 360bp YoY.
• EBITDA margin came in at 19.1% and contracted 440bp YoY. This was largely due to higher other expenses as % of sales (+400bp YoY) and staff cost as % of sales (+240bp YoY), largely led by integration of the Heinz business.
• EBITDA at INR6.9b (v/s est. INR6.7b) was down 17.5% YoY.
• Adj PAT came in at INR3.8b (in-line) and declined 26.5% YoY.