Company Update - Cadila Healthcare - ICICI Direct

Cadila Healthcare's wholly owned subsidiary, Zydus Animal Health and Investments (ZAHL), has entered into an agreement to sell its animal health (AH) business focused on India and certain other markets to a Multiples Alternate Asset Management led consortium (Canada Pension Plan Investment Board and RARE Enterprises). The consortium will purchase the business through an SPV controlled by them in the name of Zenex Animal Health India. The slump sale deal to acquire 100% of Zydus AH, being undertaken at a lump sum consideration of Rs. 2921 crore on a cash and debt free basis, is expected to be completed within the next 90 days. Note: ZAHL has another AH business under development that is expected to commence AH business in the US and certain European countries, in due course, and is not part of this transaction.

Valuation & Outlook

The deal looks decent from a valuation point of view with implied EV/sales at 4.87x FY21E animal health business and implied EV/EBITDA multiple of 19.5x. This deal bodes well in the larger scheme of things as the company will increase focus on its core businesses such as India formulations, wellness and the niche franchisees of biosimilars and injectables in the US and other developed markets besides significant debt reduction. That said, Moraiya warning letter resolution and US base business performance are some important aspects to watch in the near term. Given the recent run-up in the stock, we change our stance from BUY to HOLD and arrive at our target price of Rs. 640 (vs. Rs. 555 earlier) based on 26x FY23E EPS of Rs. 24.7.

For details, click on the link below: Link to the report

Shares of CADILA HEALTHCARE LTD. was last trading in BSE at Rs.646.95 as compared to the previous close of Rs. 629.7. The total number of shares traded during the day was 1388560 in over 22581 trades.

The stock hit an intraday high of Rs. 673.7 and intraday low of 632.8. The net turnover during the day was Rs. 904432803.

Source : Equity Bulls

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