Upgrade Neutral to Buy rating with revised target price of Rs 1020

Cadila's YTD revenue performance was almost in line with our expectations but it has positively surprised us on the margin front. The YTD margins stood at 16.5% against our FY14 margin expectation of 15.6%. Also, the management has guided for a steady margin expansion of about 100bps annually led by ramp up in US generics, recovery in domestic formulations as well as JV operations and rationalization of loss making operations. Hence, with the improving visibility for better profitability, we upgrade our FY14/FY15 EPS estimates by 10%/7% to Rs 33.1/Rs 47.0 and introduce our FY16 EPS at Rs 53.6. In line with our earning upgrade, we upgrade our rating on Cadila from Neutral to BUY with a revised target price of Rs 1020, implying an upside of 13%.

Source : Equity Bulls

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