Stock Market Update on Cadila Healthcare for 1QFY2012

Stock Market Update on Cadila Healthcare for 1QFY2012 with a Buy recommendation and a Target Price of `1,053. (12 months)

For 1QFY2012, Cadila Healthcare (Cadila) reported results that were mostly in-line with our expectations, except on the operating front, which reported lower-than-expected performance. Management has re-affirmed its guidance of US$3bn by FY2015–16. The stock is trading at 24.7x FY2012E and 18.1x FY2013E earnings. We maintain Buy with a revised target price of `1,053.

Results in-line, except on the operating front: For 1QFY2012, Cadila reported net sales of `1,174cr, up 11.2% yoy, higher than our estimates of `1,280cr, driven by the domestic formulation sales and CRAMs JV. On the domestic front, net sales grew by 9% yoy to `436cr (`398.2cr). Gross margin for the quarter declined to 69.1% (69.1%). OPM also declined to 19.6% (20.7%) during the quarter, majorly due to the increase in employee expenses and R&D expenses, which rose by 26.5% and 34.2%, respectively. Adjusted net profit increased by 17.7% yoy to `187.4cr (`159.2cr), higher than our estimates of `179cr. However, reported net profit came in at `234.3cr, registering growth of 15.1% yoy, aided by lower interest expenses and higher other income (of which `44.6cr was contributed by the licensing income from Abbott).           

Outlook and valuation: We expect Cadila’s net sales to post a 20.5% CAGR to `6,478cr and EPS to report a 24.8% CAGR to `52.6 over FY2011–13E. We maintain Buy on the stock with a revised target price of `1,053.