cadila healthcare result updated

7/31/2019 Cadila Healthcare Result Updated

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY2012 3QFY2012 % chg (qoq) 4QFY2011 % chg (yoy)Net sales 1,344 1352 (0.6) 1169 15.0Other income 71 49 45.4 48 49.5

Gross profit 870 900 (3.4) 731 19.0

Operating profit 229 231 (0.7) 184 24.8

Reported net profit 171 149 14.5 179 (4.6)Source: Company, Angel Research

Cadila Healthcare (Cadila) reported lower-than-expected numbers for4QFY2012, except on the sales front. The companys sales for the quarter were

mostly in-line at `1,344cr. On the operating front, gross and operating margins

reported an improvement. However, a higher interest and tax expense during the

quarter resulted in net profit coming in lower than expectations. Overall, net profit

came in at `171cr, registering a dip of 4.6% yoy. Management expects the

company to be a US$3bn company by 2015. We recommend Buy on the stock.Sales just in-line with expectations: For 4QFY2012, Cadila reported net sales of`1,344cr, up 15.0% yoy and higher than our estimate of `1,415cr, driven by

domestic markets. On the domestic front, net sales grew by 32.5% yoy to

`

644.3cr. The companys gross margin expanded to 64.7% during the quarter.The companys OPM also expanded to 17.1%, majorly due to improvement in

gross margin. Net profit for the quarter, however, declined by 4.6% yoy to `171cr

(`179cr), on account of higher interest and tax expense during the quarter.

Outlook and valuation: We expect Cadilas net sales to post a 17.3% CAGR to`7,386cr and EPS to report a 22.3% CAGR to `47.7 over FY201214E.

We recommend Buy on the stock with a revised target price of `953.Key financials (Consolidated)Y E March (` cr) FY2011 FY2012 FY2013E FY2014ENet sales 4,465 5,090 6,148 7,386% chg 24.9 14.0 20.8 20.1

Net profit 711 653 769 976% chg 39.6 (8.2) 17.9 26.9

EPS 34.7 31.9 37.6 47.7EBITDA margin (%) 19.3 17.9 18.6 19.6

P/E (x) 22.1 24.0 20.4 16.1

RoE (%) 37.4 27.5 26.8 27.5

RoCE (%) 23.2 20.3 20.9 23.1

P/BV (x) 7.2 6.1 5.0 4.0

EV/Sales (x) 3.7 3.2 2.6 2.1

EV/EBITDA (x) 19.1 18.0 14.1 10.9

Source: Company, Angel Research

BUYCMP `767

Target Price `953

Investment Period 12 months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 74.8

MF / Banks / Indian Fls 16.0

FII / NRIs / OCBs 4.2

Indian Public / Others 5.0

Abs.(%) 3m 1yr 3yr

Sensex (8.2) (12.3) 39.5

Cadila 10.2 (15.7) 251.4

5

16,293

4,929

CADI.BO

CDH@IN

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

14,805

0.4

984 / 629

12,597

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Sarabjit Kour Nangra+91 22 39357600 Ext: 6806

[email protected]

Cadila HealthcarePerformance Highlights

4QFY2012 Result Update | Pharmaceutical

May 11, 2012


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Cadila Healthcare | 4QFY2012 Result Update

May 11, 2012 2

Exhibit 1:4QFY2012 performance (Consolidated)Y/E March (` cr) 4QFY2012 3QFY2012 % chg (qoq) 4QFY2011 % chg (yoy) FY2012 FY2011 % chgNet Sales 1,344 1,352 (0.6) 1,169 15.0 5,090 4,465 14.0Other Income 71 49 45.4 48 49.5 226 179 26.8Total Income 1,416 1,313 7.8 1,216 16.4 5,316 4,643 14.5Gross profit 870 900 (3.4) 731 19.0 3410 2989 14.1

Gross margin (%) 64.7 66.6 62.5 67.0 67.0Operating profit 229 231 (0.7) 184 24.8 910 861 5.7

Operating Margin (%) 17.0 21.3 15.7 17.9 19.3Financial Cost 38 59 (36.7) 3 1164.0 185 70 164.4

Depreciation 39 47 (16.0) 32 23.1 158 127 24.4

PBT 224 174 28.6 197 13.8 794 842 (5.8)

Provision for taxation 44 17 151.3 10 319.5 113 106 6.3

PAT before Extra-ordinary item 180 157 15.0 186 (3.3) 681 736 (7.5)Exceptional 0 0 0 0 0

Minority 9 7 26.0 7 28.8 29 25

PAT before Extra-ordinary item & MI 171 149 14.5 179 (4.6) 653 711 (8.2)EPS (`) 8.3 7.3 7.4 31.9 34.7


Exhibit 2:4QFY2012 Actual vs. Angel estimates(` cr) Actual Estimates Variance (%)Net sales 1,344 1,415 (5.0)Operating profit 229 264 (13.2)

Tax 44 51 (14.5)

Net profit 171 200 (14.6)Source: Company, Angel Research

Revenue up 15.0% yoy, just in-line with estimates

For 4QFY2012, Cadila reported net sales of `1,344cr, up 15.0% yoy and higher

than our estimate of `1,415cr, driven by domestic markets, which grew by 32.5%

yoy. Exports, on the other hand, grew by mere 5.3% yoy during the period. The

low growth in exports was mainly on account of the dip in the CRAMS business.

Overall, the U.S. business reported double-digit growth of 26.1% to `353.3cr.Europe and Japan, the other key geographies, posted yoy growth of 7.7% and

5.0%, respectively. Brazil and other emerging markets grew by 5.9% yoy and 5.2%

yoy, respectively.


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May 11, 2012 3

Exhibit 3:Sales trend in the U.S. and Europe

280

239

307

344 353

66 77 6289

71

0

40

80

120

160

200

240

280320

360

400

4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012

US Europe

(`

cr)


For 4QFY2012, the domestic segment reported 32.5% yoy growth, with the

formulations segment registering 38.2% yoy growth. In the consumer healthcare

division, Cadila continued to post growth of 10.6% in 4QFY2012. Animal

healthcare, on the other hand, grew by 25.8% yoy.

During the quarter, Cadila launched 19 new products, including line extensions in

domestic markets, of which seven were for the first time.

Exhibit 4:Sales trend in domestic formulation and consumer divisions

361

457 470 469499

77 91 88 80 86

0

100

200

300

400

500

600


Domestic Formulation Consumer division

(`

cr)


On the CRAMS front, the company generated sales of `114.1cr (`168.9cr),

reporting a dip of 32.4% yoy. For FY2012, the CRAMS segment grew by

16.0% yoy.

OPM expands by 133bp yoyDuring the quarter, the companys gross margin expanded to 64.7%, registering

an expansion of 217bp yoy. However, OPM came in at 17.0% (15.7%), expanding

by 133bp yoy. This was on the back of 27.7% and 25.3% rise in R&D and other

expenses, respectively. With this, R&D expenditure stood at ~6.6% of net sales in

4QFY2012 vs. 6.0% of net sales during 4QFY2011.


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May 11, 2012 4

Exhibit 5:OPM trend

15.7

19.618.1

21.3

17.0

0.0

5.0

10.0

15.0

20.0

25.0


(%)


Reported net profit declined by 4.6% yoy: Reported net profit declined by 4.6% yoyto `171cr (`179cr), lower than our estimate of `200cr. This was on account of

higher interest and tax expense during the quarter. Interest and tax expenses

during the quarter stood at `37.5cr (`3.0cr) and `43.6cr(`10.4cr), respectively.

Exhibit 6:Net profit trend

179

230

103

149

171

0

50

100

150

200

250


(`cr)


Concall takeaways The company aims to become a US$3bn company by 2015. The key growth

drivers for the same would be the U.S. and Indian markets.

Management has guided for 15-18% growth in the domestic business in

FY2013 on the back of Biochems acquisition and new product launches.

The U.S. business is expected to grow by 20%+ in FY2013 and FY2014 on the

back of 10-15 new launches every year.

Management plans to file 25 ANDAs in the U.S. in FY2013.


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May 11, 2012 5

The company expects double-digit growth in its consumer healthcare business

in FY2013.

The company expects Nesher to achieve US$100mn in revenue from six

launches over the next three years. In FY2013, the company plans to launch

two products by Nesher.

The companys gross margin is expected to improve by 100bp in FY2013.

Tax rate is expected to be around 20% of PBT for FY2013.

Management has guided for capex of `500cr-650cr for FY2013.

USFDA inspected its Moriya injectable facility in March 2012 and

management expects to hear back from the FDA in the coming weeks and

expects to get 10-15 ANDA approvals within six months of resolution of the

manufacturing issues.

Recommendation rationale

Strong domestic portfolio: Cadila is the fifth largest player in the domesticmarket, with sales of about `2,454cr in FY2012, contributing 47% to its top

line. The company enjoys a leadership position in the CVS, GI, women

healthcare and respiratory segments, with sales force of 4,500. The company,

on an aggressive front, launched more than 40 new products in FY2012,

including line extensions, of which 10 were for the first time. During FY2008-

12, the company reported a ~13% CAGR in its top line in the domestic

formulation business. Going forward, the company expects the segment togrow at above-industry average of 1518% on the back of new product

launches and field force expansion.

Further, the company has a strong consumer division through its stake in

Zydus Wellness, which has premium brands, such as Sugarfree, Everyuth and

Nutralite, under its umbrella. This segment, which contributes ~7% to the

companys sales, posted a dip in sales in FY2012 and is expected to bounce

back and post double-digit growth in FY2013.

Exports on a strong footing: Cadila has a two-fold focus on exports, wherein itis targeting developed as well as emerging markets, which contributed around53% to its FY2012 top line. The company has developed a formidable

presence in the developed markets of U.S., Europe (France and Spain) and

Japan. In the U.S., the company achieved critical scale of US$241mn on the

sales front in FY2012, primarily driven by market share gains in the U.S., as

some key competitors had manufacturing constraints due to the USFDA issue.

In Europe, the companys growth going forward would be driven by new

product launches and margin improvement by product transfer to Indian

facilities. In emerging markets, Cadila is aggressively targeting Brazil and the

CIS region.

One of the most profitable CRAMS players: Cadilas CRAMS JV with Nycomedand Hospira is one of the most profitable in the industry. With Abbott, the

company has guided for launches in Eastern EU market, which would begin

from October 2012.


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May 11, 2012 6

Outlook and valuation

We expect Cadilas net sales to post a 17.3% CAGR to `7,386cr and EPS to report

a 22.3% CAGR to `47.7 over FY201214E. We recommend Buy on the stock witha revised target price of `953.

Exhibit 7:Key assumptions

Key assumptions FY2013E FY2014ESales growth (%) 20.8 20.1

Growth in employee expenses (%) 20.7 20.1

Operating margin (excl. tech. know-how fees) (%) 18.6 19.6

Capex (`cr) 650 650


Exhibit 8:One-year forward PE band

-

200

400

600

800

1,000

1,200

Apr-06

Dec-0

6

Aug-07

Apr-08

Dec-08

Aug-09

Apr-10

Dec-10

Aug-11

Apr-12

Price 7x 14x 21x 28x



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May 11, 2012 7

Exhibit 9:Recommendation summary

Company Reco CMP Tgt. price Upside FY2014E FY12-14E FY2014E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharmaceuticals Buy 52 91 76.0 5.7 0.7 4.7 14.6 29.4 29.2Aurobindo Pharma Buy 109 175 60.3 6.2 0.5 3.7 4.7 10.1 14.0

Aventis* Reduce 2,083 1,937 (7.0) 20.0 2.6 16.6 5.6 16.1 17.0

Cadila Healthcare Buy 766 953 24.4 16.1 2.1 10.9 22.3 23.0 27.5Cipla Buy 319 379 18.8 16.8 2.9 13.5 13.5 15.2 16.8

Dr Reddy's Accumulate 1,662 1,798 8.2 18.5 2.7 11.3 (4.5) 29.5 19.5

Dishman Pharma Buy 42 92 119.0 3.2 0.7 4.1 38.9 8.9 10.1

GSK Pharma* Neutral 2,049 - - 24.9 5.1 16.4 8.7 38.9 29.0

Indoco Remedies Buy 460 665 44.5 6.9 0.9 6.0 25.1 13.8 16.9

Ipca labs Buy 358 443 23.8 8.8 1.4 6.4 23.5 27.3 27.7

Lupin Buy 517 646 25.1 16.0 2.1 10.8 29.1 28.0 25.2

Orchid Chemicals Buy 161 270 68.2 4.2 0.9 4.6 50.0 10.7 18.0

Ranbaxy* Neutral 479 - - 16.1 1.8 11.1 44.8 15.6 28.1

Sun Pharma Accumulate 570 635 11.5 20.9 5.7 12.6 8.3 24.0 20.8

Source: Company, Angel Research; Note: *December year ending


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May 11, 2012 8

Profit & Loss statement (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014EGross sales 2,917 3,614 4,521 5,181 6,217 7,460Less: Excise duty 55 40 56 91 69 75Net sales 2,862 3,574 4,465 5,090 6,148 7,386

Other operating income 65 113 166 173 144 144

Total operating income 2,928 3,687 4,630 5,263 6,292 7,530% chg 26.0 25.9 25.6 13.7 19.5 19.7

Total expenditure 2,322 2,881 3,604 4,179 5,005 5,939

Net raw materials 957 1,178 1,475 1,679 2,090 2,437

Other mfg costs 122 150 162 320 386 464

Personnel 311 393 549 751 907 1,090

Other 933 1,159 1,417 1,429 1,621 1,948

EBITDA 541 694 861 911 1,143 1,447% chg 34.7 28.3 24.1 5.8 25.5 26.6

(% of Net Sales) 18.9 19.4 19.3 17.9 18.6 19.6

Depreciation& amortisation 112 134 127 158 250 296

EBIT 429 560 734 753 892 1,151% chg 40.9 30.5 31.1 2.6 18.6 29.0

(% of Net Sales) 15.0 15.7 16.4 14.8 14.5 15.6

Interest & other charges 121 82 70 185 82 82

Other income 20 16 13 53 43 43

(% of PBT) 5 3 2 7 4 3

Recurring PBT 394 606 842 794 997 1,256% chg 19.3 53.9 39.0 -5.7 25.6 25.9

Extraordinary expense/(Inc.) 24 5 - - - -

PBT (reported) 370 602 842 794 997 1,256Tax 66.6 74.1 106.4 113.0 199.5 251.2

(% of PBT) 18.0 12.3 12.6 14.2 20.0 20.0

PAT (reported) 303 527 736 681 798 1,005Less: Minority interest (MI) (0.1) 22.9 25.1 28.6 28.6 28.6

PAT after MI (reported) 303 505 711 653 769 976ADJ. PAT 327 509 711 653 769 976% chg 23.8 55.5 39.6 -8.2 17.9 26.9

(% of Net Sales) 10.6 14.1 15.9 12.8 12.5 13.2Basic EPS (`) 14.8 24.7 33.8 31.9 37.6 47.7Fully Diluted EPS ( ) 14.8 24.7 33.8 31.9 37.6 47.7% chg 17.5 66.8 36.8 (5.4) 17.9 26.9


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May 11, 2012 9

Balance Sheet (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014ESOURCES OF FUNDSEquity share capital 68 68 102 102 102 102Reserves & Surplus 1,167 1,560 2,069 2,474 3,052 3,836

Shareholders funds 1,235 1,629 2,171 2,577 3,155 3,941Minority interest 23 39 67 90 119 148

Total loans 1,267 1,091 1,097 1,177 1,177 1,177

Deferred tax liability 132 114 113 118 117 116

Total liabilities 2,657 2,872 3,448 3,963 4,569 5,382APPLICATION OF FUNDSGross block 1,809 2,074 2,348 3,253 3,903 4,553

Less: Acc. depreciation 757 873 999 1,157 1,408 1,704

Net block 1,052 1,201 1,348 2,096 2,495 2,849Capital Work-in-Progress 189 248 431 248 248 248

Goodwill 478 484 484 988 988 988

Investments 25 21 21 24 24 24Current assets 1,605 1,775 2,283 2,760 3,475 4,458

Cash 252 251 295 467 705 1,130

Loans & advances 297 307 411 275 332 398

Other 1,056 1,217 1,577 2,019 2,438 2,929

Current liabilities 692 866 1,119 2,153 2,661 3,185

Net Current assets 913 909 1,164 607 814 1,273Mis. Exp. not written off - 10 - - - -

Total assets 2,657 2,872 3,448 3,963 4,569 5,382


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May 11, 2012 10

Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014EProfit before tax 370 602 842 794 997 1,256

Depreciation 112 134 127 158 250 296(Inc)/Dec in Working Capital (137) 3 (211) 729 32 (34)

Less: Other income 20 16 13 53 43 43

Direct taxes paid 49 77 106 113 199 251

Cash Flow from Operations 275 646 639 1,514 1,037 1,223(Inc.)/Dec.in Fixed Assets (388) (299) (291) (723) (650) (650)

(Inc.)/Dec. in Investments (1) (84) (0) (3) - -

Other income 20 16 13 53 43 43

Cash Flow from Investing (368) (368) (278) (673) (607) (607)Issue of Equity - - - - - -

Inc./(Dec.) in loans 421 (177) 7 226 - -

Dividend Paid (Incl. Tax) (71) 75 (176) (192) (192) (192)

Others (142) (177) (147) (704) - -

Cash Flow from Financing 208 (279) (317) (670) (192) (192)Inc./(Dec.) in Cash 115 (1) 45 171 238 425

Opening Cash balances 93 252 251 295 467 705Closing Cash balances 252 251 295 467 705 1,130


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May 11, 2012 11

Key Ratios

Y/E March FY2009 FY2010 FY2011 FY2012 FY2013E FY2014EValuation Ratio (x)P/E (on FDEPS) 51.7 31.0 22.6 24.0 20.4 16.1P/CEPS 37.7 24.5 18.7 19.3 15.4 12.3

P/BV 12.7 9.6 7.2 6.1 5.0 4.0

Dividend yield (%) 0.4 0.7 0.8 1.0 1.0 1.0

EV/Sales 5.8 4.6 3.7 3.2 2.6 2.1

EV/EBITDA 30.8 23.8 19.1 18.0 14.1 10.9

EV / Total Assets 6.3 5.7 4.8 4.1 3.5 2.9

Per Share Data (`)EPS (Basic) 14.8 24.7 33.8 31.9 37.6 47.7

EPS (fully diluted) 14.8 24.7 33.8 31.9 37.6 47.7

Cash EPS 20.3 31.2 40.9 39.6 49.8 62.1

DPS 3.0 5.0 6.0 8.0 8.0 8.0

Book Value 60.4 79.7 106.1 125.9 154.1 192.5

Dupont AnalysisEBIT margin 15.0 15.7 16.4 14.8 14.5 15.6

Tax retention ratio 82.0 87.7 87.4 85.8 80.0 80.0

Asset turnover (x) 1.3 1.5 1.6 1.6 1.7 1.9

ROIC (Post-tax) 16.5 20.1 23.0 20.1 19.9 23.1

Cost of Debt (Post Tax) 9.4 6.1 5.6 13.9 5.6 5.6

Leverage (x) 0.8 0.7 0.4 0.3 0.2 0.1

Operating ROE 21.9 29.5 30.7 22.1 22.9 24.5

Returns (%)ROCE (Pre-tax) 18.3 20.2 23.2 20.3 20.9 23.1

Angel ROIC (Pre-tax) 26.3 30.9 35.6 33.5 36.5 40.8

ROE 28.5 35.6 37.4 27.5 26.8 27.5

Turnover ratios (x)Asset Turnover (Gross Block) 1.7 1.9 2.1 1.9 1.8 1.8

Inventory / Sales (days) 67 67 62 66 69 73

Receivables (days) 52 47 49 57 60 65

Payables (days) 70 72 80 136 141 142

WC cycle (ex-cash) (days) 74 65 60 35 7 6

Solvency ratios (x)Net debt to equity 0.8 0.5 0.4 0.3 0.1 0.0

Net debt to EBITDA 1.9 1.2 0.9 0.8 0.4 0.0

Interest Coverage (EBIT / Int.) 3.6 6.8 10.5 4.1 10.8 14.0


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May 11 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Cadila

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

cadila healthcare result updated

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