Stock Review: Cadila Healthcare

Strong domestic performance, coupled with impressive growth in the US, helped Cadila Healthcare post revenue growth of 18.1 per cent year-on-year at `1,117 crore in the September quarter.

Cardio-vascular and respiratory care segment buoyed domestic revenues by 19 per cent to `466.8 crore. Launch of 10 products during the quarter and a pick-up in the sales of H1N1 vaccine, too, helped earnings. The US business saw the launch of anticonvulsant drug Divalproex generics, which helped Cadila clock a business of `226 crore from the region, up 41 per cent compared to the year-ago period.

Despite a depreciating euro, revenues from France grew at a faster pace, helping European generic revenues grow 11 per cent. Formulation revenues from Brazil at `58.4 crore grew at a healthy pace of 27 per cent. Revenues from shipments of Doxecatel to Hospira also grew 54 per cent to `31.2 crore. However, the active pharmaceutical ingredient (API) business was slightly subdued, with declining supplies to Nycomed (down 21 per cent to `16.4 crore). It may continue to lag till Navi-Mumbai facilities start functioning in 2011-12.

Domestic formulation growth boosted operating margins by 20 basis points (bps) to 21.9 per cent. Margins could have expanded more, but for increasing employee costs and other expenses. Net profit came in 30 per cent higher y-o-y at 176.8 crore. Cadila has 57 ANDAs (abbreviated new drug applications) approvals pending, while 58 have already been permitted. It plans to file 10-15 ANDA every year. Therefore, it should get 8-10 approvals every year. Despite currency appreciation, analysts at Motilal Oswal estimate the US business to grow at a compounded annual rate of 23 per cent over 2010-12.

Hence, with strong growth prospects from all business segments, revenues in 2010-11 are estimated to grow 20 per cent to `4,434.2 crore and profits are likely to grow in tandem to `606.6 crore, according to analysts. The stock ended 2.5 per cent higher at `708.75 on Thursday and trades at 23.5x201011E earnings.