Cadila Healthcare - An aberration - Edelweiss

Cadila's (CDH) Q3FY13 Adj.PAT of INR1.2bn was lower than INR2bn estimated. Revenue growth of 15% was lower than estimated 21% and EBITDA margins declined to 14.8% from 19% in Q2FY13. This underperformance is attributed to - a) discretionary/non-recurring costs of INR300-350mn that impacted margins by 250bps and; b) decline in gross margins (150bps impact) led by disruption in Brazil and price erosion in US.

We expect these fixed costs to come-off in Q4FY13, retracting margins to 17%, while improvement in product mix and operating leverage should lead to further expansion in Gross/EBITDA margins by FY14.

Maintain 'BUY' and revise TP to INR910 (18x FY15 EPS) factoring in lower revised EPS of INR30.2/38.6 for FY13E-14E.

Source : Equity Bulls

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