CADILA HEALTHCARE LTD.

Transcription

1 4 ISIN: INE010BO1019 FEBRUARY 22 nd 2014 STOCK DETAILS Sector CADILA HEALTHCARE LTD. BSE Code Face Value 5.00 Result Update: Q3 FY14 Pharmaceuticals 52wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) ANNUAL ESTIMATED RESULTS (A*: ACTUAL / E*: ESTIMATED) Years FY13A FY14E FY15E Net Sales EBITDA Net Profit EPS P/E SHAREHOLDING PATTERN (%) 1 YEAR COMPARATIVE GRAPH CADILA HEALTHCARE LTD. BSE SENSEX Recommend BUY CMP Target Price Highlights Cadila Healthcare Ltd. has posted 81% jump in its net profit from Rs mn to Rs mn in current December quarter. Total Income i.e net sales of the company improved by 16.68% and stood at Rs mn compared to Rs mn in Q3 FY13. EBDITA of the company stood at Rs mn rising by 13.23% YOY and the total expenditure rose by 16% YOY at Rs mn in Q3 FY14. PBT rose at even higher rate of 35% from Rs mn to Rs mn in current December quarter. Zydus Cadila has received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity, Etodolac Extended- release Tablets for treatment of Juvenile arthritis, rheumatoid arthritis & osteoarthritis and Bupropion Hydrochloride Extended- release Tablets USP which is in the anti-depressants segment. Finance costs in the current quarter fell by 52% compared to the corresponding quarter in the previous year. In the present quarter, the company s business in the US and Europe was up by 61% and 6% respectively. Exports to emerging markets grew by 30% at Rs. 832 mn in Q3 FY14. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April- December 2013 to 49. Net Sales and PAT of the company are expected to grow at a CAGR of 14% & 10% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Cadila Healthcare Ltd Cipla Ltd Sun Pharmaceuticals Ltd Divis Laboratories

2 Analysis & Recommendation- BUY Cadila Healthcare Ltd. is on the rise from the last six months. The scrip has risen 1.5 times since last September As per market expectations, Net Profit galloped by 81% YOY at Rs mn against Rs mn in the corresponding quarter of the previous year. Net Sales grew at 17% and stood at Rs mn in Q3 FY14 compared to Rs mn in Q3 FY13. Expenses rose by 16% YOY at Rs mn in the current December quarter. With low expenditure and finance costs declining by 52% (Rs mn)YOY, company reported Profit Before Tax of Rs 2360 mn compared to Rs mn in the same period previous year, rising by 35% YOY. Cadila s domestic business has grown by 3.8% whereas exports grew by 38% YOY. Global Business in US, Emerging Markets and Europe rose by 61%, 30% and 6% respectively. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April- December 2013, to 49. During the December quarter, the company received US FDA approval for initiating Phase I clinical trials of ZYDPLA1 a novel, next generation orally active, small molecule DPP-4 inhibitor to treat Type 2 Diabetes. In addition to that, Cadila Healthcare has received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity, Etodolac Extended- release Tablet for treatment of Juvenile arthritis, rheumatoid arthritis & osteoarthritis and Bupropion Hydrochloride Extendedrelease Tablets USP which is in anti-depressants segment. Cadila Healthcare with its strong fundamentals is poised for higher growth with low debt equity ratio of 0.88 as on 31 st March Thus we recommend BUY for the scrip with target price of Rs COMPANY PROFILE Zydus Cadila, a global healthcare provider was founded by Late Mr. Ramanbhai B. Patel in In 1995, the group restructured its operations and emerged with a new identity under the aegis of Zydus group as Cadila Healthcare Ltd. Cadila Healthcare is the flagship company of Zydus Cadila group. The group, headquartered in Ahmedabad develops, manufactures and markets broad range of healthcare products ranging from API to formulations, animal health products and cosmeceuticals. The Zydus Cadila group has global operations in four continents spread across USA, Europe, Japan, Brazil, South Africa and 25 other emerging markets. Zydus Cadila is a leading player in the cardiovascular, gastrointestinal and women's healthcare segments. The group has strong presence in respiratory, pain management, CNS, anti-infectives, oncology, neurosciences, dermatology and nephrology segments. It has been able to maintain overall position and market share through faster growing lifestyle segments. The group has several in-licensing alliances with global multinationals such as Schering AG, Boehringer Ingelheim, Viatris, etc. The portfolio of products of the group is over 200 which are marketed by a specialized field force of about 3,000. With one of the strongest distribution channels in the industry, the group reaches out to 1,00,000 chemists and serves 2,00,000 doctors including physicians, specialists and super specialists.

3 Zydus Wellness Ltd., spearheads the group's presence in the consumer and wellness segment. The products of the company comprises of Sugar Free Gold India s No.1 sweetener with a market share of over 70%, Sugar Free Natura a zero calorie sucralose based sugar substitute, Sugar Free D lite a low calorie healthy drink and Nutralite a premium cholesterol-free table spread. Nutralite has emerged as the second largest brand in the category of butter and butter substitutes. In addition to that the company also caters to the skincare segment with its Everyuth and Dermacare brands, which occupy a unique distinction of being a skincare brand from a healthcare company. Enriched with the power of natural ingredients, EverYuth has a strong presence in advanced skincare segments like soap-free, face washes, face masks, scrubs etc. Quarterly Highlights Q3 FY14 Months Dec -13 Dec-12 % Change Total Income % Net Profit % Net Profit Margin 9.93% 6.41% 352 BP EBITDA % EBITDA Margin 16.46% 16.96% (50BP) Other Income % Profit Before Tax % Total income of the company rose by 17% and stands at Rs mn from Rs mn in Q3 FY13. Net profit of the company galloped at 80% to Rs mn from Rs mn. EBDITA increased by 13.23% from Rs mn to Rs mn in Q3 FY14. EBDITA margin fell by 50 basis points. Net profit margin jumped by 352 basis points mainly due to decline in tax expenditure and finance costs. Other income of Cadila Healthcare Ltd rose by 89% from Rs mn to Rs mn in current September quarter. Profit Before Tax also rose by 35.57% at Rs mn in Q3 FY14. Break up of Expenditure Rs. In Mn Q3 FY14 Q3 FY13 CHNG % Material Consumed % Stock in Trade % Employee Benefit Exp % Dep. & Amortz. Exp % Other Exp %

4 Cost of material consumed rose by just 3% at Rs mn. Purchase of stock in trade rose by 36.92% from Rs mn to Rs mn in Q3 FY14. The highest rise in expenditure was from stock in trade and employee benefit expenses by 37% and 12.44% respectively. Employee benefit expenses rose from Rs mn to Rs mn in Q3 FY14. Depreciation and amortization fell by 1.14% to Rs mn from Rs mn in Q3 FY13. Other expenses grew by 7.31% at Rs mn in the current December quarter. Revenue Segment Domestic sales (In Rs. Mn) Q3 FY14 Q3FY13 % change Formulations % API % Wellness % Animal Health and Others % Total Domestic Sales % Important Updates (In Rs. Mn) Q3 FY14 Q3 FY13 % change Exports % Formulations: US % Europe % Japan (19.44%) Brazil (4.05%) Mexico % Emerging markets % API: % Animal Health & Others: % Zydus Cadila received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity. As per IMS data in 2013, the sales of Sirolimus 0.5mg was estimated at $11.7 million and the total market for Sirolimus was approximately $203.8 million. The group also received Duloxetine delayed release capsules in different strengths of 20 mg, 30 mg and 60 mg. The sales for Duloxetine were estimated at $5.5 billion in While Sirolimus tablets are immunosuppressant

5 drugs used to prevent rejection in organ transplantation, Duloxetine delayed release capsules fall in the anti-depressants segment. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April-December 2013, to 49. In Mexico, the company launched 2 new products during the quarter, taking the cumulative launches to 6 and filed 8 dossiers with the Mexican regulatory authority, taking the cumulative filings to 36. The company filed 9 dossiers with the ANVISA, taking the cumulative filings to 113. In the European market, the company received the approval for 15 new product dossiers and launched 2 new products in France and 3 new products in Spain. 7 new products were launched in the different Emerging Markets during the quarter. During the quarter, the company received the US FDA approval for initiating Phase I clinical trials of ZYDPLA1 a novel, next generation orally active, small molecule DPP-4 inhibitor to treat Type 2 Diabetes. For Biosimilars, the company initiated Phase III clinical trials for one of the mabs and completed Phase I clinical trials completed for both the novel biologics, PEGEPO and Rabimabs. Zydus Cadila has received the final approval from the USFDA to market Etodolac Extended- release Tablet USP, 400 mn, 500 mn and 600 mg. The drug is prescribed for treatment of Juvenile arthritis, rheumatoid arthritis and osteoarthritis. Zydus Cadila has received the final approval from the USFDA to Bupropion Hydrochloride Extended- release Tablets USP (XL) in the strength of 300 mg. The drug falls in the anti-depressants segment. Cadila Healthcare Limited and Zydus Pharmaceuticals (USA), Inc. have entered into an agreement in principle with Warner Chilcott Company LLC to settle all outstanding patent litigation related to Asacol HD (mesalamine) delayed-release tablets. The agreement remains subject to preparation and execution of definitive documentation. Under the terms of the agreement in principle, Warner Chilcott Company will grant Cadila and Zydus a royalty bearing license to market a generic version of Asacol HD beginning on November 15, 2015 or earlier under certain circumstances, following receipt by Zydus of final approval from the U.S. Food and Drug Administration (FDA) of its Abbreviated New Drug Application (ANDA) for generic Asacol HD. Alternatively, if Zydus does not receive FDA approval of its generic Asacol HD by July 1, 2016, Zydus will be permitted to launch an authorized generic version of Asacol HD beginning on July 1, 2016.

6 FINANCIAL STATEMENTS & ESTIMATIONS (CONSOLIDATED) Balance Sheet as on March 31 st, 2012 to 2015E (A*- Actual, E* -Estimations & Rs. In Millions) Cadila Healthcare Ltd FY12A FY13A FY14E FY15E EQUITY AND LIABILITIES: Shareholders Funds: Share Capital Reserves and Surplus Net worth (a) Minority Interest (b) Non-Current Liabilities: Long-term borrowings Deferred Tax Liabilities [Net] Other Long Term Liabilities Long Term Provisions Long term liabilities (c) Current Liabilities: Short-term borrowings Trade Payables Other Current Liabilities Short Term Provisions Current Liabilities (d) Total Liabilities (a+b+c+d) ASSETS: Non-Current Assets: Tangible Assets Goodwill on consolidation (net) Non Current Investments Long Term Loans and Advances Total Non Current Assets (e) Current Assets: Current Investments Inventories Trade Receivables Cash and Bank Balances Short Term Loans and Advances Other Current Assets Total Current Assets (f) Total Assets (d+e)

7 Annual Profit & Loss Statement for the period of 2012to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun Sep Dec Mar-14E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Equity capital Face value EPS

8 Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) EBITDA Margin (%) 21.60% 18.29% 16.85% 17.28% PBT Margin (%) 15.09% 12.76% 12.85% 13.56% PAT Margin (%) 12.94% 10.88% 11.30% 11.60% P/E Ratio (x) ROE (%) 26.47% 22.75% 21.22% 19.34% ROCE (%) 28.25% 23.52% 20.64% 19.30% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) Charts P/BV

9 INDUSTRY OVERVIEW Indian pharmaceutical industry is a branded generics market, growing at a CAGR of 12.5% over the past five years. The pharmaceutical industry is expected to grow at a fast rate on the basis of high growth in exports and stable domestic market. Growth in the domestic pharma is mainly driven by improved medical infrastructure, increase in per capita income and increase in health insurance coverage. The export market of Indian pharmaceutical industry is driven by patent expiries of branded drugs all over the world. Pharma industry in India is highly fragmented and the entry of more players has made the industry highly competitive. At present there are 250 large units and 8000 small scale units. Before 1970, India was dependent on foreign companies for various drug requirements, but now India is completely self sufficient and imports are done only due to quality and economic reasons and not because of non- availability of pharmaceutical products. Indian pharmaceutical industry has undergone a wave of mergers and acquisitions. Starting from Ranbaxy acquired by Daiichi Sankyo, Shanta Biotech by Sanofi-aventis, Primal Healthcare by Abbot to name a few. The pharma sector has attracted foreign direct investments (FDI) worth US$ 11, million during April 2000 to April 2013, according to the latest data published by Department of Industrial Policy and Promotion (DIPP). India ranks 4 th worldwide and accounts for 8% of world's production by volume and 1.5% by value. It ranks 17th in terms of export value of bulk actives and dosage forms. The Indian pharmaceutical industry will continue its growth story and is expected to grow at percent in and touch $29 billion by OUTLOOK AND CONCLUSION At the current market price of Rs the stock P/E ratio is at x FY14E and x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 10% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at x for FY14E and x for FY15E. Price to Book Value of the stock is expected to be at 5.10 x and 4.16 x respectively for FY14E and FY15E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment.

10 Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

11 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Anil Kumar IT, Auto & FMCG Suhani Adilabadkar Pharma & Banking M. Vinayak Rao Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com