Cadila Healthcare, 12th February 2013

7/29/2019 Cadila Healthcare, 12th February 2013

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Please refer to important disclosures at the end of this report 1

Other income 60 42 44.5 49 22.7

Gross profit 1023 941 8.7 290 252.5

Operating profit 212 271 (21.9) 231 (8.2)

Source: Company, Angel Research

Cadila Healthcare (Cadila) reported below-expected numbers for 3QFY2013,

except on the sales front. The companys sales for the quarter at `1,561cr, were

just-in-line with our estimates. On the operating front, the gross and operating

margins came in below our expectations. This along with a higher tax expense

during the quarter resulted in the net profit coming in a tad lower than

expectations. Overall, the adjusted net profit came in at `103cr, a dip of 31.0%

yoy. The Management expects the company to be a US$3bn one, by FY2016.

: For 3QFY2013, Cadila reported net sales of `1,561cr,

up 15.4% yoy, just-in-line with our estimate of `1,559cr. Sales were driven by a

21.8% yoy growth in the domestic markets, while exports grew only by 12.9% yoy

during the period. During the quarter, the companys gross margin dipped to65.5%, a contraction of 104bp. This led to the OPM to contract to 13.6% (17.1%

in 3QFY2012), ie by 349bp yoy. This along with the higher tax expense during

the quarter, led the adjusted net profit to decline by 31.0% yoy to `103cr (`149cr

in 3QFY2012), below our estimate of `182cr.

: We expect Cadilas net sales to post a 17.3% CAGR to

`7,386cr and EPS to report an 11.5% CAGR to `39.5 over FY201214.

% chg 24.9 14.0 20.8 20.1

% chg 39.6 (8.6) (17.1) 49.9

EBITDA margin (%) 19.3 17.9 16.0 18.0

P/E (x) 22.8 24.9 30.0 20.0

RoE (%) 37.4 27.4 19.6 24.8

RoCE (%) 22.9 17.3 13.7 17.2

P/BV (x) 7.5 6.3 5.5 4.5

EV/Sales (x) 3.8 3.5 3.0 2.4

EV/EBITDA (x) 19.6 19.6 18.6 13.6


CMP 791

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 74.8

MF / Banks / Indian Fls 15.2

FII / NRIs / OCBs 5.1

Indian Public / Others 4.9

Abs.(%) 3m 1yr 3yr

Sensex 3.4 10.0 22.3

Cadila (4.6) 19.2 68.9

5

19,485

5,904

CADI.BO

CDH@IN

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

16,202

0.3

964 / 661

14,349

Net debt (`cr) 1,944

Face Value (`)

BSE Sensex

Nifty

Reuters Code

+91 22 39357600 Ext: 6806

[email protected]

Performance Highlights

3QFY2013 Result Update | Pharmaceutical

February 8, 2013


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Cadila Healthcare | 3QFY2013 Result Update

February 8, 2013 2

Exhibit 1:3QFY2013 performance (Consolidated)

Other Income 60 42 44.5 49 22.7 190 155 22.1

Gross profit 1023 941 8.7 900 13.6 2967 2541 16.8

Operating profit 212 271 (21.9) 231 (8.2) 686 681 0.7

Financial Cost 48 41 18.2 59 (19.3) 146 147 (1.2)

Depreciation 50 43 14.8 47 6.6 136 119 14.7

PBT 175 229 (23.8) 174 0.3 594 570 4.1

Provision for taxation 63 71 (11.7) 17 263.1 178 69 156.1

Exceptional 0 53 0 0 0

Minority 9 9 (2.4) 7 24 19


Exhibit 2:3QFY2013 Actual vs Angel estimates

Other income 60 28 116.2

Operating profit 212 279 (24.0)

Tax 49 50 (1.2)


Revenue up 15.4% yoy, just-in-line with estimates

For 3QFY2013, Cadila reported net sales of `1,561cr, up 15.4% yoy and higher

than our estimate of `1,559cr, driven by domestic markets, which grew by 25.3%

yoy. Organic growth during the quarter in domestic formulations has been around

18% yoy. Exports on the other hand grew by 12.9% yoy during the period. The

growth in exports came on the back of formulation exports, which grew by 13.5%

yoy during the period, impacted by slow growth in the US region, which grew by

14.1% yoy growth.

Europe and Japan, the other key geographies, posted a yoy growth of 25.9% and

17.0%, respectively. Brazil and other Emerging markets grew by (15.9%) yoy and

31.8% yoy respectively.


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February 8, 2013 3

Exhibit 3:Sales trend in the US and Europe

344 353359 367

392

8971

85 76

112

0

40

80

120

160

200

240

280

320360

400

440

3QFY2012 4QFY2012 1QFY2013 2QFY2013 3QFY2013

US Europe

(`

cr)


For 3QFY2013, the domestic segment reported a 21.8% yoy growth, with the

formulations segment registering a 21.4% yoy growth. In the consumer healthcare

division, Cadila continued to post a growth of 27.8% in 2QFY2013. Animal

healthcare, on the other hand, grew by 21.4% yoy.

During the quarter, Cadila launched 15 new products, including line extensions in

domestic markets, of which 4 were for the first time in India.

Exhibit 4:Sales trend in domestic formulation and consumer divisions

469499

582 602 570

80 86103 97 102

0

100

200

300

400

500

600

700


Domestic Formulation Consumer division

(`

cr)


On the CRAMS front, the company generated sales of `126cr (`121cr in

3QFY2012), reporting a growth of 4.2% yoy. For FY2013, the company guided for

a double digit growth in the CRAMS segment.


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February 8, 2013 4

The companys gross margin dipped to 62.2%, a contraction of 574bp. This led

the OPM to contract to 13.6% (17.1% in 3QFY2012), ie a decline of 349bp.During the quarter, R&D expenditure was ~8.8% of net sales vs 8.2% of net sales

during 3QFY2012.

Exhibit 5:OPM trend

17.1 17.0 16.917.9

13.6

0

2

4

6

8

10

12

14

16

18

20


(%

)


The adjusted net profit declined by 31.0%

yoy to `103cr (`149cr), lower than our estimate of `182cr.This was on account ofa higher tax expense during the quarter. Tax expenses during the quarter were at

`63cr (`17cr in 3QFY2012). Reported net profit came in at `103cr vs `149cr in

3QFY2012.

Exhibit 6:Adjusted Net profit trend

149

171

195

149

103

0

50

100

150

200

250


(`cr)



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February 8, 2013 5

Concall takeaways

The Management maintained its vision of the company being a US$3bn

company by FY2016. The key growth drivers for the same would be the US

and Indian markets.

The Management guided for an 18% growth in the domestic business in

FY2013 on the back of Biochems acquisition and new product launches.

The company has filed 18 new ANDAs in 3QFY2013.

For FY2014, the company will launch 19 orals and 1 transdermal.

The company expects a double-digit growth in its consumer healthcare

business in FY2013, with OPM of around 25%.

Operating margin is expected to improve to 18-19% in FY2014.

The Management has guided for capex of `500cr-650cr for FY2014.

Recommendation rationale

: Cadila is the fifth largest player in the domestic market,

with sales of about `2,454cr in FY2012, contributing 47% to its top-line. The

company enjoys a leadership position in the CVS, GI, women healthcare and

respiratory segments, with a sales force of 4,500. The company, on an aggressive

front, launched more than 40 new products in FY2012, including line extensions,

of which 10 were for the first time. During FY2008-12, the company reported an

~13% CAGR in its top-line in the domestic formulation business. Going forward,

the company expects the segment to grow at an above-industry average rate of

1518% on the back of new product launches and field force expansion.

Further, the company has a strong consumer division through its stake in Zydus

Wellness, which has premium brands such as Sugarfree, Everyuth and Nutralite,

under its umbrella. This segment which contributes ~7% of sales, posted a dip in

sales during the quarter but is expected to post a double digit growth in FY2013.

: Cadila has a two-fold focus on exports, wherein it is

targeting developed as well as emerging markets, which contributed around 53%

to its FY2012 top-line. The company has developed a formidable presence in thedeveloped markets of US, Europe (France and Spain) and Japan. In the US, the

company achieved a critical scale of US$241mn on the sales front in FY2012,

primarily driven by market share gains in the US, as some key competitors had

manufacturing constraints due to the USFDA issue. In Europe, the companys

growth going forward would be driven by new product launches and improvement

in margin by product transfer to Indian facilities. In emerging markets, Cadila is

aggressively targeting Brazil and the CIS region.

Outlook and valuation

We expect Cadilas net sales to post a 17.3% CAGR to`7

,386cr and EPS to reportan 11.5% CAGR to `39.5 over FY201214.


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February 8, 2013 6

Exhibit 7:Key Assumptions

Sales growth (%) 20.8 20.1

Growth in employee expenses (%) 14.6 26.6

Operating margins (excl tech. know-how fees) (%) 16.0 18.0

Capex (` cr) 614 650


Exhibit 8:One-year forward PE band

-

100

200

300

400

500

600

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

(`)

Price 10x 15x 20x 25x


Company background: Cadila Healthcares operations range from API to

formulations, animal health products and cosmeceuticals. The group has global

operations in four continents spread across USA, Europe, Japan, Brazil, South

Africa and 25 other emerging markets. Having already achieved the US$1bn mark

in 2011, the company aims at achieving sales of over US$3bn by 2015 and be a

research-driven pharmaceutical company by 2020.


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February 8, 2013 7

Exhibit 9:Recommendation Summary

Alembic Pharma. Buy 74 95 28.4 7.8 0.9 5.0 17.1 29.4 30.2Aurobindo Pharma Accumulate 184 208 13.0 13.1 1.3 8.9 69.7 10.7 17.8

Cipla Accumulate 381 419 9.9 17.6 3.1 12.6 23.2 19.1 17.6

Dr Reddy's Neutral 1,857 - - 20.0 2.8 13.4 2.3 15.1 20.8

Dishman Pharma Buy 99 145 46.5 7.3 1.1 5.5 26.6 8.7 11.0

GSK Pharma* Neutral 2,093 - - 25.4 5.0 16.0 8.7 38.9 29.0

Indoco Remedies Buy 61 78 27.9 7.8 0.9 6.0 24.8 14.6 15.6

Ipca labs Buy 482 559 15.9 12.9 1.9 9.1 30.6 25.7 26.4

Lupin Accumulate 598 655 9.5 19.0 2.7 12.4 27.2 24.9 25.2

Ranbaxy* Neutral 429 - 13.3 1.5 9.3 50.3 29.7 16.1

Sanofi India* Neutral 2,292 - - 26.1 2.9 17.3 2.7 12.5 14.8

Sun Pharma Neutral 744 - - 25.0 5.0 11.7 0.1 27.6 19.2

Source: Company, Angel Research; Note: *December year ending


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February 8, 2013 8

Profit & Loss statement (Consolidated)

Less: Excise duty 55 40 56 91 69 75

Other operating income 65 113 166 173 144 144

% chg 26.0 25.9 25.6 13.7 19.5 19.7

Total expenditure 2,322 2,881 3,604 4,179 5,163 6,059

Net raw materials 957 1,178 1,475 1,679 2,090 2,437

Other mfg costs 122 150 162 320 386 464

Personnel 311 393 549 751 861 1,090

Other 933 1,159 1,417 1,429 1,826 2,068

% chg 34.7 28.3 24.1 5.8 8.2 34.7

(% of Net Sales) 18.9 19.4 19.3 17.9 16.0 18.0

Depreciation& amortisation 112 134 127 158 240 293

% chg 40.9 30.5 31.1 2.6 (1.1) 38.8

(% of Net Sales) 15.0 15.7 16.4 14.8 12.1 14.0

Interest & other charges 121 82 70 185 175 175

Other income 20 16 13 53 43 43

(% of PBT) 5 3 2 7 6 4

% chg 19.3 53.9 39.0 (5.7) (4.7) 38.2

Extraordinary expense/(Inc.) 24 5 - 3 - -

Tax 66.6 74.1 106.4 113.0 189.2 209.2

(% of PBT) 18.0 12.3 12.6 14.2 25.0 20.0

Less: Minority interest (MI) (0.1) 22.9 25.1 28.6 28.6 28.6

% chg 23.8 55.5 39.6 (8.6) (17.1) 49.9

(% of Net Sales) 10.6 14.1 15.9 12.8 8.8 10.9

% chg 14.0 55.5 (7.0) (8.6) (17.1) 49.9


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February 8, 2013 9

Balance Sheet (Consolidated)

Equity share capital 68 68 102 102 102 102Reserves & Surplus 1,167 1,560 2,069 2,471 2,835 3,468

Total loans 1,267 1,091 1,092 2,289 2,500 2,500

Other Long Term Liabilities 19 43 43 43

Long Term Provisions 62 79 76 76

Deferred tax liability 132 114 113 119 119 119

Gross block 1,809 2,074 2,317 3,008 3,858 4,508

Less: Acc. depreciation 757 873 969 1,175 1,415 1,708

Capital Work-in-Progress 189 248 431 484 248 248

Goodwill 478 484 484 1,015 1,015 1,015

Long Term Loans and Adv. 201 263 260 314

Current assets 1,605 1,775 2,125 2,760 2,872 3,692

Cash 252 251 295 467 168 426

Loans & advances 297 307 411 275 266 337

Other 1,056 1,217 1,420 2,019 2,438 2,929

Current liabilities 692 866 1,087 1,186 1,186 1,755

Mis. Exp. not written off - 10 - - - -


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February 8, 2013 10

Cash Flow Statement (Consolidated)

Profit before tax 370 602 842 794 757 1,046

Depreciation 112 134 127 158 240 293(Inc)/Dec in Working Capital (137) 3 (286) (365) (411) 6

Less: Other income 20 16 13 53 43 43

Direct taxes paid 49 77 106 113 189 209

(Inc.)/Dec.in Fixed Assets (388) (299) (291) (743) (614) (650)

(Inc.)/Dec. in Investments (1) (84) (0) (4) - -

Other income 20 16 13 53 43 43

Issue of Equity - - - - - -

Inc./(Dec.) in loans 421 (177) 7 1,238 208 -

Dividend Paid (Incl. Tax) (71) 75 (176) (175) (175) (175)

Others (98) (177) (72) (619) (114) (53)

Inc./(Dec.) in Cash 159 (1) 45 171 (299) 258


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February 8, 2013 11

Key Ratios

P/E (on FDEPS) 33.0 21.2 22.8 24.9 30.0 20.0P/CEPS 39.0 25.3 19.3 20.0 20.8 14.7

P/BV 13.1 9.9 7.5 6.3 5.5 4.5

Dividend yield (%) 0.4 0.6 0.8 1.0 1.0 1.0

EV/Sales 6.0 4.8 3.8 3.5 3.0 2.4

EV/EBITDA 31.8 24.5 19.6 19.6 18.6 13.6

EV / Total Assets 6.5 5.9 4.8 3.4 3.2 2.8

EPS (Basic) 24.0 37.3 34.7 31.7 26.3 39.5

EPS (fully diluted) 24.0 37.3 34.7 31.7 26.3 39.5

Cash EPS 20.3 31.2 40.9 39.6 38.1 53.8

DPS 3.0 5.0 6.0 8.0 8.0 8.0

Book Value 60.4 79.7 106.1 125.7 143.5 174.5

EBIT margin 15.0 15.7 16.4 14.8 12.1 14.0

Tax retention ratio 82.0 87.7 87.4 85.8 75.0 80.0

Asset turnover (x) 1.3 1.5 1.6 1.3 1.2 1.3

ROIC (Post-tax) 16.5 20.1 22.7 16.8 11.2 14.8

Cost of Debt (Post Tax) 9.4 6.1 5.6 9.4 5.5 5.6

Leverage (x) 0.8 0.7 0.4 0.5 0.8 0.7

Operating ROE 21.9 29.5 30.3 20.8 15.4 21.1

ROCE (Pre-tax) 18.3 20.2 22.9 17.3 13.7 17.2

Angel ROIC (Pre-tax) 26.3 30.9 34.9 27.2 19.9 23.2

ROE 28.5 35.6 37.4 27.4 19.6 24.8

Asset Turnover (Gross Block) 1.7 1.9 2.1 2.0 1.8 1.8

Inventory / Sales (days) 67 67 62 66 57 61

Receivables (days) 52 47 49 57 50 54

Payables (days) 70 72 80 136 61 77

WC cycle (ex-cash) (days) 74 65 55 64 76 73

Net debt to equity 0.8 0.5 0.4 0.7 0.8 0.6

Net debt to EBITDA 1.9 1.2 0.9 2.0 2.4 1.6

Int. Coverage (EBIT / Int.) 3.6 6.8 10.5 4.1 4.3 5.9


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February 8 2013 12

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Disclosure of Interest Statement Cadila

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Cadila Healthcare, 12th February 2013

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Transcript of Cadila Healthcare, 12th February 2013