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Strong domestic growth mostly offset by US decline…

Q4 revenues grew 2.5% YoY to | 3847 crore. Domestic formulations grew 14.7% YoY to | 1023 crore. US sales fell 14.3% YoY to | 1509 crore. Wellness segment grew a robust 22.1% YoY to | 598 crore. Emerging markets grew 45.5% YoY to | 250 crore. API segment grew 19.9% YoY to | 140 crore. Animal health segment grew 25.2% YoY to | 150 crore. EBITDA margins expanded 115 bps YoY to 22.2% mainly due to lower other expenditure partly offset by lower gross margins. Subsequently, EBITDA grew 8.1% YoY to | 855 crore. Reported PAT grew 73.3% YoY to | 679 crore. Delta vis-à-vis EBITDA was mainly due to DTA related adjustments taken in the quarter.

US expected to grow on new launches

US (43% of FY21 revenues) grew at ~10% CAGR in FY16-21 backed by aggressive filings, product launches. Launch of authorised generics also contributed to overall growth. US pipeline (cumulative) comprises 412 filed ANDAs, 317 having final approvals. However, resurfacing of cGMP issues at Moraiya, imminent slowdown in base are main near term headwinds. We expect US sales to grow at 4.1% CAGR in FY21-23E to | 6989 crore.

India to witness restructuring; focus on profitable SKUs

With a market share of 4.25%, Cadila is the fourth largest player in the domestic formulations market, as per AIOCD March 2021. The acute: chronic: sub-chronic ratio for the company is 54:31:15. Domestic formulation grew at a CAGR of 6.3% in FY16-21 backed by new launches and acquisition of Biochem. Recently, the company optically initiated restructuring of business by rationalising slow moving SKUs. We expect Indian formulations to grow at a CAGR of ~13% in FY21-23E to | 5145 crore.

Valuation & Outlook

Q4 revenues were in-line with I-direct estimates whereas profitability was higher due to lower-than-expected other expenditure and DTA related adjustments. On the US front, Cadila plans to venture into complex injectables, which is likely to provide meaningful traction from FY23-24 onwards. The wellness segment performance hinges upon Cadila’s marketing & distribution prowess besides effective product positioning. India formulations business, after recent restructuring, is likely to stabilise. The company has significantly improved net debt position in FY21 (nearly half of FY20) utilising proceeds from QIP of consumer wellness business and through internal accruals amid better working capital control which will only improve further. Cadila has been very active on the Covid 19 treatment front with significant offerings including work on vaccines. Overall, post the significant unlocking of animal health segment, other lingering issues like continued b/s reduction, Moraiya warning letter resolution, US base business performance in tough times are some important aspects to watch. We maintain HOLD and arrive at our TP of | 640 (unchanged) based on base business value of | 544 (22x FY23E EPS of | 24.7) + NPV of ~| 96 for vaccine and gRevlimid opportunity.

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