Cadila Healthcare - Q1FY14 Result Update - Sushil Finance

Cadila Healthcare Limited. (Cadila) reported disappointing set of numbers in Q1FY14 with revenue registering a mere growth of 2.7% to Rs.16371 mn due to subdued performance across the segments & geographies (muted performance in US and India business while Japan and Brazil reported negative growth). EBIDTA de-grew by 17.3% whereas PAT came in flat at Rs.1956 mn mainly on the back of decrease in interest cost & lower than estimated tax rate. The following are the key highlights of the results which are summarized below:

Key Highlights of Q1FY14

Revenues grew by mere 2.7% YoY from Rs.15944 mn in Q1FY13 to Rs.16371 mn in Q1FY14. The company witnessed a growth of 7.5% in its domestic formulation business whereas its export formulation business recorded a growth of 5.3%.

Domestic Business registered a growth of 8.6% from Rs.7454 mn in Q1FY13 to Rs.8096 mn in Q1FY14. The domestic formulations segment grew by 7.5% to Rs.6252 mn due to de-stocking of inventory at the stockist level with ambiguity over prices under NPPP 2013. Consumer business during the quarter exhibited 11.3% growth as its Nutralite and Everyuth brands posted muted growth. Animal healthcare, on the other hand, remained flat with revenues of Rs.494 mn.

Export formulations business registered a sluggish growth of 5.3% to Rs.6268 mn on the back of muted growth witnessed in geographies such as US (7.9%) & Europe (8.5%) and de-growth in Brazil (-19.5%) & Japan (-12.2%). On the export API front, the company saw muted growth of 1.2% during the quarter.

Cadila's JV business was flat at Rs.1310 mn primarily on account of price erosion in its existing product portfolio.

Higher employee cost and muted growth in US & India business caused operating margins to decline to 17.5% from 21.7% YoY resulting in de-growth of 17.3% in operating profits to Rs.2858 mn as against Rs.3456 mn in Q1FY13.

Net Profit came in flat at Rs.1956 mn vs Rs.1948 mn in Q1FY13 on the back of lower than expected interest expense and tax rate as the company utilized MAT credit whereas margins were at 11.9%.

OUTLOOK & VALUATION

Q1FY14 continued being a challenging quarter for Cadila with pressure on margins on account of slow approvals in the US & Brazil, declining profitability from JVs and moderate growth in the domestic market. We believe the sluggishness in the domestic formulation space (due to lack of clarity in relation to implementation of NPPP 2013) & exports markets such as US (lack of new product approvals leading to downward revision of its product launch guidance to 5-8 from earlier 15-20 for FY14E), Brazil (lack of approvals due to regulatory changes in ANVISA), JV sales (on account of lack of new products and price erosion in existing products) is likely to prevail in FY14E. With the near term outlook expected to remain challenging for the company, we downward revise our target price to Rs.860 based on 18x its FY15E EPS of Rs.47.8 (previously 20x), however, we maintain a BUY rating on the stock as it still offers decent upside.

Source : Equity Bulls

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