Maintain 'buy' on Cadila Healthcare - TP Rs.976 - Geojit BNP Paribas Financial Services

- While adjusting for forex loss of Rs.11.5 crore, 1QFY13 result is in line with market expectations.

- 53% yoy growth in constant currency in the emerging markets and 40% yoy growth in Brazil are the positive surprises in the quarter.

- 5% qoq decline in US sales in constant USD and lack of scale up in biochem business acquired in Dec.11 are negative surprises.

- The company got US FDA clearance for the sterile facility at Moraiya last month and new approvals are expected to come through. The company expects 10 approvals in FY13.

- 1QFY12 margins of 20.5% is expected to be sustained for FY13 as synergy benefits come in for biochem business and stronger growth is expected from the US after the product approvals.

- The growth story of Cadila appears on track and the key catalyst is speedy approvals of key products from the US FDA, which should accelerate growth in the US markets over the next 18 months.

- Potential from India, emerging markets and three JV also remain strong.

- The company is entering a period of high growth, which is likely to lead to free cash flow generation and this could be used for debt reduction. The company expects D/E ratio of 0.5 by end FY14 from the current D/E of 0.7 times.

- Maintain buy rating with target price of Rs.976.

- Delay in product approvals from US FDA and the potential impact of proposed pharma pricing policy on Indian sales are risks to the target price.

Source : Equity Bulls

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