Cadila Healthcare: Outperformance continues in Q1

Product approvals, clearance of Moraiya facility, domestic growth key triggers for re-rating

Cadila Healthcare’s performance for the quarter ended June beat market expectations on the operational front. Operating Ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 601.50 crore was way higher than the Bloomberg consensus estimate of Rs 516.5 crore.  The margins at 24.1 per cent continue to grow compared to 21.7 per cent seen in the earlier quarter and 18.3 per cent in the year-ago one. The improving US performance has been responsible. The stock has given 76 per cent returns in the past  year and gained another 5.16 per cent on Wednesday, closing at Rs 2,017.30 and hit a 52-week high of Rs 2,045 intraday.

 

Sales at Rs 2,378.3 crore came close to the estimated Rs 2,379.6 crore by Bloomberg. Profits at Rs 353.4 crore were close to estimates at Rs 355.7 crore. The quarter saw a surge in taxes (up 228 per cent) or profits would have beaten Street estimates.

The formulation business in the US (40 per cent of overall revenue) grew  37 per cent to Rs 985 crore, boosting overall exports. Formulation exports at Rs 1,249.4 crore grew 27.9 per cent as the emerging markets formulation business also grew a strong 19.5 per cent. In the Latin American market, Brazil continues to see good traction, reporting about 26 per cent constant currency growth, while it is ramping up in Mexico, too.

The domestic formulations business, contributing 31 per cent to overall sales, grew 9.9 per cent. Impacted by new drug price controls, the company also lost manufacturing rights for two more products that contributed Rs 70-80 crore annually. Domestic growth has, thereby, remained soft. During the quarter, Cadila launched 12 products. A Nomura report referring to  data from industry body AIOCD indicates growth at 8.3 per cent for Cadila in July, lower than industry growth of 13.1 per cent.

The US sales continue to be driven by generics of anti-malarial Hydroxychloroquine and urinary tract drug Urocit-k. The company is receiving approvals for new launches, though these are smaller in size. The most awaited are those for launch of Asacol HD (anti-inflammatory drug) and Prevacid OD (gastrointestinal drug). The developments on clearances of the Moraiya facility by the US regulator, if it is a positive development, will be a key trigger.

Besides, the other triggers are approval for other higher value product launches and pick-up in domestic growth momentum.