Hold Cadila Healthcare Ltd For Target Rs.565 - ICICI Direct
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Indian steady in Q2 but US slowdown persists…
About the stock: Cadila is a leading pharma company with family pedigree having presence in domestic branded formulations, US generics and is in the process of repurposing itself into niche areas of specialty pharmaceuticals, biosimilars, vaccine.
* Revenue break-up – US: 43%, India: 27%, Wellness: 12%, Europe & emerging markets including countries in LatAm, Asia Pacific & Africa: 8%
* Cadila is the fourth largest pharma company in India with 14 brands among Top 300 pharma brands in India and nine with | 100 crore+ sales
Q2FY22 Results: Cadila reported steady Q2FY22 results.
* Sales were down 0.9% YoY to | 3784.8 crore
* EBITDA was at | 860.8 crore, down 0.3% YoY with margins at 22.7%
* Consequent adjusted PAT was at | 586 crore (up 1.4% YoY)
What should investors do? Cadila’s share price has grown by ~1.4x over the past five years (from ~| 352 in July 2016 to ~| 503 levels in Oct 2021).
* We maintain HOLD rating on the stock due to continued challenges in US business and imminent structural challenges on the vaccines front
Target Price and Valuation:
We value Cadila at | 565 (base business of | 501 at 22x P/E on FY23E EPS + NPV of | 61.5 for vaccine & gRevlimid opportunity).
Key triggers for future price performance:
* Cadila plans to venture into complex injectable in US. However, it is likely to provide meaningful traction only from FY23-24 onwards
* US pipeline of 412 filed ANDAs, 317 final approvals is promising but cGMP issues at Moraiya, slowdown in base are main near term headwinds
* India formulations business is likely to stabilise as the company has optically initiated restructuring of business by rationalising slow moving SKUs
* Has pipeline of innovative products like Saroglitazar Magnesium, Antimalarial compound, Biologics and 505(b)(2) specialty initiatives
Alternate Stock Idea:
Apart from Cadila, in our healthcare coverage we like Cipla.
* Cipla is a global pharma company with over 1,500+ products in 65 therapeutic categories, with over 50 dosage forms
* BUY with a target price of | 1085
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