Cadila Healthcare

Beta 0.3

Institutional holding 17.5%

Dividend Yield 1.2%

P/E 14.9

M-Cap Rs 4,578cr

ONE of the top ten pharma companies (by sales) in the country, Cadila Healthcare’s stock went up by 56% in the last four months, outperforming the Pharma Index that rose by 43% during the period. At twice its revenues, the company looks fairly valued for its size and business. However, considering Cadila’s growth potential, it looks to be an attractive long-term bet. Nevertheless, any short-term rally in the stock does not look sustainable, as the market seems to have discounted most of the current good news.

Business:

Ahmedabad-based Cadila Healthcare is the flagship company of the Zydus Cadila group. It is engaged in manufacturing of formulations, active pharmaceutical ingredie-nts and consumer products. A lit-tle over half of its revenues are contri-buted by its operations in India, 30% from regulated mark-ets like US, EU and Japan and the rest from emerging markets. In the domestic market, it manufactures drugs related to cardiology, gastro-intestinal, women’s healthcare and respiratory illnesses. It is also involved in contract manufacturing space thro-ugh joint ventures with Switzerland based Nyco-med and US based Hospira.

Growth Strategy:

Cadila’s growth comes primarily from its exports. In FY09, the company acquired Spainish generic player Laboratories Combix, and followed it up by acquiring South Africabased Simalya Pharmaceuticals. The company is now actively strengthening its regulatory drug pipeline to enter new territories. The company has filed a total of 92 ANDAs and 76 DMFs. Cadila invests 6% of its revenues in R&D. The company which plans to be a research driven pharmaceutical firm, is currently working on 6 New Molecular Entities (NME). The company expects to have at least 10 active R&D programs in clinical research by 2011. It has entered into a new drug discovery and development agreement with Eli Lilly in the area of cardiovascular seg-ment. The company may receive milestone payments of up to US$ 300 million and royalties on sales if a molecule is commercialized by Eli Lilly. Cadila has also integrated its restructured con-sumer business into its subsidiary Zydus Wellness.

Financials:

The Rs 2800 crore company logged a better than expected performance in FY09. And it has set itself an ambitious target of doubling its revenues to $1 billion (Rs 5000 crore) by FY2011. To achieve its target, the company is betting on the ramp up of its operations in its joint venture contract manufacturing business and export formulations. The company’s earnings would be further boosted as its joint venture with Hospira has started commercial operations from May this year.Amajor concern, however, is the slow rate of growth registered by its domestic business, the highest contributor to its revenues currently. During FY09, its Indian business operations grew only by 10%, lagging behind the average industry growth of 12%.

Valuations:

Given the multipronged business and the significant scale up in its operations, the company’s stock, unlike its peers, had been under valued till recently. With most large pharma companies having taken a beating due to poor performance or clamp-down by US FDA, the market turned to stocks having untap-ped value. Cadila Healthcare was one such stock with a lot of value intact. However, with most of the value having been realised, the stock looks fairly valued in the near term. For long term investors, it is good buy, while the investors with very short term horizons can probably give it a miss.

Stock Views on Cadila Healthcare, Ranbaxy,

KRChoksey on Ranbaxy Laboratories - Target of Rs 183

KRChoksey has maintained its buy rating on Ranbaxy Laboratories with a price target of Rs 183 in its research report.

"Ranbaxy to launch Daiichi Sankyo’s innovative antihypertensive drug, “Olvance” in India. We have revised our earnings estimate keeping in view the revenue inflow from the approval for the generic version of Imitrex and the launching of anti hypertensive drug, Olvance. We are positive about Ranbaxy as Medicines and Healthcare products Regulatory Agency (MHRA) of UK, and the Therapeutic Goods Administration (TGA), Department of Health and Ageing of the Australian Government, have issued Good Manufacturing Practice (GMP) certificates for its manufacturing site at Paonta Sahib (India), following a joint audit conducted in October 2008."


"The MHRA approval will not only cover product filings for the UK but will also apply to product filings for the entire European Union. We maintain our BUY rating to the stock with a price objective of Rs 183," says KRChoksey's research report.


Reliance Money on Ranbaxy - Target of Rs 189

Reliance Money has upgraded its rating on Ranbaxy Laboratories from hold to buy with a target price of Rs 189 in its research report.

"Ranbaxy’s Paonta Sahib plant (that has been under U.S. Food and Drug Administration (USFDA) Import Alert since September 2008) receives approval from United Kingdom (UK- MHRA) and Australian (TGA) regulatory authorites for GMP Compliance. Moreover, the UK - MHRA approval will also apply to all product filings for the entire European Union region. At the CMP, Ranbaxy is attractively valued at 8x its CY09E earnings (after factoring the NPV value worth Rs 70 for its FTF pipeline). Hence, with about 25% price correction in in Ranbaxy, we upgrade our rating from 'Hold' to 'Buy' with the earlier fixed target price of Rs 189," says Reliance Money's research report.


Emkay Global on Cadila Healthcare - Target of Rs 339


Emkay Global Financial Services has maintained its buy rating on Cadila Healthcare with a target price of Rs 339 in its research report.


"Cadila Healthcare entered into an agreement with the US-based pharma major Eli Lilly for the discovery and development of drugs in the area of cardiovascular research. Under the agreement, Lilly would have an option to license any resulting molecules at different stages. Cadila Healthcare would receive potential milestone payment of up to USD 300 million and royalties on sales upon the successful launch of any compounds. The exact impact on earnings will not be ascertained because of lack of information. However, we view this development as positive for the company as it demonstrates the R&D capabilities of Cadila Healthcare. We reiterate our Buy rating on the stock with a target price of Rs 339," says Emkay Global Financial Services' research report.

Stock Views on Great Offshore, Jindal Saw, Cadila Healthcare

Reliance Money on Great Offshore - Target of Rs 376

Reliance Money has maintained its buy rating on Great Offshore with a target price of Rs 376 in its research report.

"Great Offshore Limited has bagged a 3 year charter commencing end April 2009 with ONGC for three of its vessels (1 PSV and 2 AHTSVs) for operating in offshore India. The aggregate value of contract is around USD 65 million. Keeping in view a relatively stable business profile (as 75%-80% of revenues come from ONGC) and good earnings visibility on account of long term contracts, we maintain 'BUY' on Great Offshore with target price of Rs 376. At our target price, GOFF would trade at 6.1x FY10 earnings, and at 0.6x of its NAV," says Reliance Money's research report.

Sharekhan on Jindal Saw - Target of Rs 476

Sharekhan has maintained its buy rating on Jindal Saw with a price target of Rs 476 in its research report.

"Jindal Saw Ltd’s (JSL) Q4CY2008 numbers are ahead of our expectations on the back of an exceptionally strong top line. With the hive-off of the US division, the results are not strictly comparable with the same quarter of the last year. The revenues declined by 3.9% year on year (yoy) but marked a growth of 4.2% quarter on quarter (qoq) to Rs 1,548.1 crore. For the full year, the company reported revenues of Rs 5,003.3 crore and profits of Rs 342.3 crore on a stand-alone basis."

"On a consolidated level, the company has reported revenues of Rs 5,356.7 crore and net profits of Rs 326.3 crore, a little lower than the stand-alone numbers, mainly on account of losses of about Rs 15 crore incurred in Jindal Waterways. We maintain our 'Buy' recommendation on the stock with a revised price target of Rs 476 (6x CY2009E earnings)," says Sharekhan's research report.

Angel Broking on Cadila Healthcare - Target of Rs 350

Angel Broking has maintained its buy rating on Cadila Healthcare with a target price of Rs 350 in its research report.

"We believe Cadila’s R&D collaboration deal with Eli Lilly is a positive as it corroborates Cadila’s capabilities, although material cash flow would come over long term. This is Cadila's first collaborative agreement with a big Pharma company in the R&D space, which may in the long term, unlock value for it’s R&D business."

"While overdependence on Nycomed has been a major concern for Cadila, we believe that new client additions in the segment would aid de-risking and reduce the company's dependence on the same. Further, the Hospira joint venture (JV) is expected to commercialise in April 2009 and start contributing to the company's Bottom-line from FY2010. Excluding any upsides from the JVs and factoring in a decline in the Profitability of Nycomed, we expect the company to post a CAGR of 24% in Net Profit over FY2008-10E. We maintain a Buy on the stock, with a target price of Rs 350," says Angel Broking's research report.

Stock Views on Varun Shipping, Biocon, Cadila Healthcare, Great Offshore

Karvy on Varun Shipping - Target of Rs 61

Karvy Stock Broking has maintained its buy rating on Varun Shipping Company with a target price of Rs 61 in its research report.

"The timely exit from drybulk segment in FY08 where freight rates have fallen by 85% since May 2008 and entry into promising deepwater support servicessegment by acquiring high end anchor handling tugs (AHTS) are expected to help the company to grow operating profits in current turbulent time in shipping. The Company has significantly reduced cyclicality associated with the shipping industry with selection of low risk assets and building diversified fleet across three segments viz. the Liquefied Petroleum Gas i.e. LPG, crude and offshore."

"We expect consolidated revenue to increase by 2.2% to Rs 9.69 billion in FY10 and by 12.4% to Rs 10.9 billion in FY11 and net profit to decline by 10.7% to Rs 1.25 billion in FY10 and increase by 42.2% to Rs 1.77 billion in FY11. We maintain our valuation at 30% discount to NAV with target price of Rs 61 and maintain Buy rating," says Karvy Stock Broking's research report.

IIFL on Biocon - Target of Rs 181

IIFL has maintained its buy rating on Biocon with a price target to Rs 181 in its research report.

"Our recent meeting with Biocon’s management persuades us that the company is stable and growing, notwithstanding the large forex losses that it suffered in FY09 and those that we believe it will continue to suffer to a lower extent for 3-5 years. The biosimilar insulin opportunity in the regulated markets could provide significant upside over the next 3-4 years. The company plans to launch biosimilar insulin in Europe in 1HCY11 and its big pharma partner is making headway towards a launch in the US. Earnings in 4QFY09 will again likely be weighed down by a large forex item, but such losses would be significantly lower thereafter. The stock’s current valuation a PE of 9x on core FY10ii earnings is attractive, in our view. We maintain BUY and raise our price target to Rs 181," says IIFL's research report.

Sharekhan on Cadila Healthcare - Target of Rs 372

Sharekhan has maintained its buy rating on Cadila Healthcare with a price target of Rs 372 in its research report.

"Zydus Cadila (Zydus) has signed a new collaborative drug discovery and development deal with US-based Eli Lilly to develop drugs focusing on the area of cardiovascular diseases. As per its earlier deals with Piramal Healthcare, Jubilant Organosys and Suven Life sciences, Eli Lilly has adopted a similar approach and will pay Zydus for finding new drug candidates and taking them to mid-stage trials, at which point Eli Lilly will have the option to step in and licence the most promising therapies."

"We maintain our positive stance on Zydus, given the strong traction across its business segments. The strong traction in the domestic and the US businesses, and the increasing visibility of the business from the Hospira joint venture reinforce our view on Zydus’ continued growth prospects. We reiterate our Buy recommendation on Zydus with a price target of Rs 372," says Sharekhan's research report.