US-led growth helps Cadila post steady Q1 show even as India biz falters

While India business disappointed, lower expenses helped margins

Led by a steady operating performance, Cadila Healthcare posted better-than-expected results for the June quarter. The company reported a 4 per cent year-on-year (YoY) increase in revenues, led by the US market. Sales in that geography — which accounts for 46 per cent of Cadila’s consolidated revenues — were up 19 per cent over the year-ago quarter. 

The US generics segment was up 25 per cent YoY, led by higher volumes and new product introductions. 

The company highlighted that generic pricing is largely stable and has guided for a low to mid single-digit price erosion. Sales in the US market were down on a sequential basis because of a reduction in seasonal products.

Growth, going ahead, is expected to come from new product launches, as well as the abbreviated new drug application approval for 12 products. 

 

 

Further, sales from the base business and market share gains will likely lead to a revenue uptick. A key trigger for the stock should be the Moraiya plant (near Ahmedabad) resolution; the company is awaiting review by the US drug regulator. Cadila has transferred a couple of products to the Liva plant near Vadodara which should help de-risk regulatory concerns.

The disappointment was on the India health-care revenues. The revenues declined 10 per cent YoY, as compared to the pharma market fall of 6 per cent. While its larger brands performed well and overall sales improved gradually towards the end of the quarter, analysts highlighted that weak sales of acute drugs in the portfolio led to the underperformance. 

While revenue growth was muted, the company managed to improve its operating profit margins by 360 basis points YoY, and 130 basis points over the March quarter, to 22.4 per cent. The gains were led by lower marketing, promotions, and administration costs. 

While the company reduced debt by Rs 1,500 crore in the quarter from FY20 levels, it indicated some of the gains on efficient working capital management was reversible. It has set a target of bringing down debt by Rs 1,000 crore, from Rs  6,700 crore in FY20. Other triggers for the stock can be the outcome of the ongoing clinical trials related to Covid-19, as well as monetising of the injectables pipeline.