Cadila Healthcare (BUY): A transition Quarter - AMBIT

Cadila's 1QFY14 results were marginally below our and consensus expectations. The lower-than-expected gross profit coupled with higher employee expenses resulted in EBITDA margins declining to 17.5% (144bps lower than our estimate). The divergence between the reported numbers and our estimates at the PAT level was lower than that at the EBITDA level due to lower-than-expected tax rates and interest expense. A pick up in product approvals in the US formulations segment as well as an above-industry growth in the domestic formulations business will lead to higher revenue growth in the medium term. However, we expect the build up in business momentum to be partially offset by increased investments in limited-competition products, which would be margin-dilutive in the near term. We await further clarity from the management at the conference call scheduled today before we revise our estimates and valuations. Our one-year forward target price of Rs861 implies an FY14 P/E of 21.3x and FY14 EV/EBITDA of 14.8x. BUY.

Source : Equity Bulls

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