Maintain ADD on Cadila Healthcare - In-line quarter; US revenues sluggish - HDFC Securities

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities

Cadila's Q3 results were broadly in line as subdued performance in the US (-6 QoQ) was offset by healthy growth in India formulations (+21% YoY) and consumer business (+16% YoY). Despite higher R&D spends (9.2% of sales, +178bps QoQ), EBITDA margin came in line, aided by controlled other expenditure (costs at 70-80% of pre-Covid levels). US business is expected to witness improved traction from FY22, driven by 40+ launches (including 8-10 complex ones). R&D investments in vaccines, biosimilars, NCE/NBEs, Covid portfolio provide potential upside monetisation opportunities. We trim our EPS estimate by 7%/ 3% for FY22/23e to factor in lower US sales and increased R&D spends. Revised TP at Rs480/sh. Maintain ADD.

In-line performance: Revenue grew by 4% YoY to Rs38bn as strong growth in India formulations (+21% YoY, specialty business, Covid portfolio), Consumer biz (+16% YoY, double digit growth in key brands) and animal health (+17% YoY) offset muted performance in the US (-8% YoY, -6% QoQ, weak flu, inventory correction). Despite higher R&D expense (+97bps YoY,+178bps QoQ), EBITDA margin came in line with expectations at 21.3% (+208bps YoY, -134bps QoQ), aided by lower other expenses (-247bps YoY, - 33bps QoQ, continued cost savings).

Muted show in the US: US business declined 8% YoY and 6% QoQ on the back of a weak flu season and inventory correction (order delays). Cadila expects to launch 40+ products, including 8-10 complex ones in FY22. It filed 10 ANDAs and received 9 approvals (incl. 4 TA) in the quarter.

Key call takeaways: a) Saroglitazar - to start Phase 3 trials in the US, expects to enter in CY23 for PBC (targets to be in the first wave of launches) and, in CY25, for NASH indication. In India, the company expects it to be a Rs2.5bn molecule in 3-5 years; b) ZyCov-D - data read out in 1QFY22, to incur~Rs1.5-2bn capex in plant, current dose capacity -10-20mn, 120mn capacity to come by Q2FY22, looking at CMO for 70mn doses; c) Vaccine contribution (ex-Covid) to rise from Rs700mn to ~USD100mn by FY24-25; d) Capex guidance: ~Rs7-8bn annually; R&D - 8-9% of sales; e) US - Q4 sales to be ~USD220mn; gRevlimid - litigation is ongoing; e) Net debt - Rs38bn as at Dec'20; f) Moraiya plant - no further updates, awaiting response from FDA.

Shares of CADILA HEALTHCARE LTD. was last trading in BSE at Rs.475 as compared to the previous close of Rs. 479.15. The total number of shares traded during the day was 636638 in over 11616 trades.

The stock hit an intraday high of Rs. 488.85 and intraday low of 472. The net turnover during the day was Rs. 305738398.

Source : Equity Bulls

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