Cadila Healthcare - Steady growth, US launches key; Buy - Anand Rathi

Strong PAT growth. We expect 10.8% yoy revenue growth for the company, mainly led by domestic formulations and US generics. EBITDA margin is expected to increase 110bps yoy, to 15.9%, due to low base effect and reduced other operating expenses. This represents an improvement from the previous quarter. We expect adjusted PAT to grow 92.2% yoy, above revenues, led by better margins, lower effective tax rate and interest charge.

US a key growth driver. We expect its US revenue to grow 20% yoy on low base effect, new product approvals in FY14 and favourable currency. We expect its domestic formulations business to grow at 10% yoy, including Biochem, due to potential impact of new drug pricing policy and slowdown in the overall industry. Overall, export revenues are expected to grow 15% yoy. However, we expect decline in revenue from JVs due to increased competition in products.

Strong growth ahead. We expect the company to report strong growth ahead, led by more product approvals for the US market and recovery in domestic formulations. Over FY13-15, we expect CAGR of 13.2% in revenue and 14.6% in adjusted PAT, with decent RoE and RoCE of ~23% and ~17%, respectively, by FY16e.

Our take. We expect EBITDA margin to revive from 3QFY14 (past six quarters were severely hit by several one-time expenses and unfavourable revenue mix). We estimate 10.8% yoy revenue growth. However, we estimate its adjusted net profit to grow 92.2% yoy led by better margins, lower effective tax rate and interest cost. The stock is currently trading at 19.2x FY15e and 15.8x FY16e earnings. We maintain Buy, with a price target of Rs. 856 based on 20x FY15e earnings (earlier Rs. 770 based on 18x FY15e earnings). Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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