Cadila Healthcare - Results Below expectations - Karvy

Cadila's revenues grew 25% YoY to Rs. 15.4 bn in Q2FY13, lower than our estimates of Rs. 16.2 bn due to degrowth in Brazil and lower traction in domestic formulations. Higher R & D and forex loss on hedges and inventories impacted COGS and EBDITA margins. We downgrade our earnings and price target and maintain HOLD.

Quarter Details: Domestic formulations (DF) grew 28% YoY to Rs6,018 during Q2FY13. Ex-Biochem DF grew by 18 %. JV sales stood at Rs. 1.3 bn in-line with our estimates. Brazil has reported a degrowth of 25% due strike at ANVISA. EBITDA margins were at 14.8%, lower than our estimates of 21.9% primarily due to forex loss due to expiration of hedges to the tune of US$61 mn. Other operating income stood at Rs. 334 mn (excl. forex gain of Rs.17 mn) in Q2FY13, as against our estimates of Rs.300 mn. The Company has posted Rs. 951 mn profit as against our estimate of Rs. 2,196 mn.

Road Ahead: The Company's domestic formulations will continue to outperform. The company has balance hedges of US$19 mn at Rs 51. Abbott supplies will begin from Q4FY13 onwards.

Outlook & Valuation: We maintain our revenue estimates for FY13E and FY14E. We downgrade our EBDITAM for FY 13E from 20.9% to 20.1% and for FY14E from 22.2% to 20.2% owing to higher R&D expenses. Owing to increase in tax from 22% to 25% or FY13E and FY14E we downgrade our EPS estimate by 4.8% to Rs. 37.0 for FY13E and by 8.9% to Rs. 44.9 for FY14E. We downgrade our target price by 8.8% to Rs.876 based on 19.5x FY14E and maintain our HOLD rating on the stock.

Risks: Downside in our domestic formulation estimates owing to NLEM impact. 4.8 % impact on FY 14 PBT on 1 % weighted average policy.

Source : Equity Bulls

Keywords