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Buy Cadila Healthcare; target of Rs 500: Axis Direct

November 27
23:41 2017

Axis Direct’s research report on Cadila Healthcare

Cadila’s Q2 EBITDA (+67% YoY, 22% above our estimate) was driven by gLialda (~USD 80-90 mn in our view) in US. EBITDA margin was up 520 bps YoY/1,405 bps QoQ at 26.5% on positive operating leverage, as India sales also grew 9% YoY. PAT at Rs 5.03 bn was in line with estimates on higher tax expenses. We continue to see strong growth visibility in 2 of its key markets (i) US: led by monetization of its niche portfolio including Mesalamine franchise, transdermals, oncology, injectables (ii) India: led by biosimilars, launch of vaccines in FY19.

Outlook

On higher tax guidance, earlier-than-expected generic competition in gLialda, we cut FY18/19 estimates by ~14/11%. Revise TP to Rs 500 (21x Sep’19E EPS) vs. Rs 540 (22x FY19E) earlier on increasing US generic headwinds. Maintain BUY, as we believe it is best positioned (vs. peers) given strong earnings visibility.

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