Cadila Healthcare (CADHEA) 1689

Transcription

1 Result Update Rating matrix Rating : Buy Target : 1913 Target Period : 12 months Potential Upside : 13% What s Changed? Target Changed from 1634 to 1913 EPS FY16E Changed from 74.6 to 75.4 EPS FY17E Changed from 9.8 to 95.6 Rating Changed from Hold to Buy Quarterly Performance Q4FY15 Q4FY14 YoY (%) Q3FY15 QoQ (%) Revenue 2, , , EBITDA EBITDA (%) bps bps Net Profit Key Financials ( crore) FY14 FY15 FY16E FY17E Revenues EBITDA Net Profit EPS ( ) Valuation summary FY14 FY15 FY16E FY17E PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Stock data Particular Market Capitalisation Debt (FY15) Cash & Liquid investment (FY15) EV 52 week H/L Equity capital Face value Amount crore 23 crore 692 crore crore 1998/ crore 5 Price performance (%) 1M 3M 6M 1Y Cadila Healthcare Glenmark Pharma Divi's Labs Research Analyst Siddhant Khandekar siddhant.khandekar@icicisecurities.com Mitesh Shah mitesh.sha@icicisecurities.com Nandan Kamat nandan.kamat@icicisecurities.com Continues to thrive on superior US growth May 18, 215 Cadila Healthcare (CADHEA) 1689 Revenues grew 16.2% to crore (I-direct estimate: crore) mainly on the back of 44.3% YoY growth in the US formulations business to 979 crore (I-direct estimate: crore) EBITDA margins improved 346 bps to 21.7% above I-direct estimates of 2.2%. The EBITDA grew 38.3% YoY to crore against our expectation of crore PAT grew 46.5% YoY to 35.4 crore vs. I-direct estimate of 291. crore boosted mainly by a strong operational performance US business getting momentum backed by aggressive product filings Despite being a late entrant in the US market, the company has achieved significant scalability. The US has grown at ~38% CAGR in FY1-15 backed by aggressive filings and product launches. Launches of authorised generics on behalf of US companies also contributed to overall growth. US sales now constitute ~39% of the total turnover, up from 14% in FY9. In terms of number of prescriptions, Cadila figures among the top 1 generic companies in the US. It acquired a company called Nesher in the US to bolster the US portfolio by adding a pipeline of controlled release substances. The US pipeline (cumulative) consists of 26 filed ANDAs, 99 approvals and 7 launches. We expect US sales to grow at 31.7% CAGR to crore in FY15-17E. Indian formulations growth backed by continuous new launches With a market share 3.76%, Cadila is the third largest player in the domestic formulations market s per AIOCD. The acute-chronic ratio for the company is 68:32. It has a dominating presence in therapies like CVS, GI and gynaecology. Almost 17% of its portfolio has been covered under the DPCO 213. Domestic formulations comprise 31% of total revenues. It has launched the first indigenous NCE Lipaglyn (CVS + anti-diabetic) in the Indian market. During FY1-15, this segment grew at 13.1% CAGR backed by new launches and acquisition of a company called Biochem. We expect Indian formulations to grow at a CAGR of 16.3% in FY15-17E to crore on the back of new launches. Other segments still struggle to witness meaningful traction Other than these two segments, there are almost 11 revenue heads spread across both the domestic and exports sub-groups. Segments like Wellness and JV & others continue to witness lumpiness. However, with planned forays into biosimilars and vaccines, we may see priorities shifting towards these high investment/niche segments. Currently, the company owns a pipeline 22 biosimilars and three novel biologics. Similarly, Cadila owns 1 vaccines in different stages of development. US growth trajectory key for overall growth; upgrade to BUY Cadila is witnessing a steep US growth trajectory on the back of aggressive filings and launches in the last few quarters. What is now striking is the quality of earnings in the US, which has shown a marked improvement over the last few quarters as reflected in the improvement in EBITDA margins. The US contribution in overall revenues is at an alltime high. The filing to approval gap is also one of the highest among peers, assuring consistency in the US traction. Indian formulations are also likely to support upbeat margins. Most other sub-segments, however, continue to languish and struggle to provide meaningful visibility. Our revised target price stands at 1913, based on 2x (earlier 18x) FY17E EPS of ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q4FY15 Q4FY15E Q4FY14 Q3FY15 YoY (%) QoQ (%) Comments Revenue 2, , , , Growth was mainly on account of 44.3% growth in the US formulation business (43% of sales) Raw Material Expenses Spurt in gross margins on the back of better product mix. The I-direct beat was mainly due to higher-than-expected margin accretive US sales Employee Expenses Other expenditure Higher other expenses were on account of forex loss and higher R&D cost EBITDA EBITDA (%) bps 124 bps Spurt in EBITDA margin was on account of higher gross margins Interest Depreciation Other Income PBT before EO & Forex EO PL NA PBT Tax Tax rate (%) Net Profit Net profit growth was due to better operational margin and higher other income EPS ( ) Key Metrics Domestic Formulations Excluding discontinuance of BI (in licensed) products and NLEM impact, the company's domestic growth was 12% in Q4FY15 Wellness APIs Animal Healthcare JVs USA Growth was mainly due to additional market shares gain in gplaquenil (anti-malaria) Europe Sales were impacted due to rationalisation of product portfolio in France Brazil Growth was impacted due to adverse currency movement Emerging markets Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Revenue 1, , , , EBITDA 2, , , , EBITDA Margin (%) bps bps PAT 1, , , , EPS ( ) Assumptions Current Earlier Comments ( crore) FY14 FY15 FY16E FY17E FY16E FY17E Domestic Formulations 2, , , , ,227. 3,711. Wellness APIs Animal Healthcare JVs US 2,17.3 3, ,75.4 5, ,285. 5,356.3 Increased currency estimate to 64/US$ from 62/US$ Europe Change in European sales estimate due to currency depreciation Brazil Emerging markets ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis The company was established in 1952 and restructured in 1995 post a family split. Cadila is one of the old generation family owned pedigree companies which, after establishing a strong base in domestic formulations, shifted focus to exports markets. Over the last decade, the revenues, EBITDA and PAT have grown by 5x, 4.5x and 5x, respectively, while the stock has given 6.2x returns during the same period. However, during the last five years, both revenue growth and margins have witnessed some weakness. Even the leverage situation has somewhat deteriorated. This was due to the cooling down effect post FY11. In its quest to achieve the US$ 1 billion revenue target by FY11 Cadila operated in top gear till FY11. Acquisitions in the US and India also put pressure on the balance sheet. Although the revenue growth has improved since then, margins have deteriorated further. This was on account of severe pricing pressure, especially in the JV business. The US and Indian formulations will be the main growth drivers, going ahead. They are also expected to improve the margin scenario. Overall, we expect revenues to grow at a CAGR of 21% in FY15-17E to crore. Exhibit 1: Overall growth to ride on US, Indian formulations growth ( crore) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Revenues Exhibit 2: Other than US, India growth likely to be subdued ( crore) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E India 1,289. 1,446. 1, , , , , , ,618.5 Wellness APIs Animal Healthcare JVs US , ,56.8 2,17.3 3, ,75.4 5,881.7 Europe Brazil Emerging markets US formulations The US has grown at 38.2% CAGR during FY1-15 backed by aggressive filings and product launches. Launches of authorised generics on behalf of US companies also contributed to overall growth. US sales now constitute 52% of the total turnover, up from 14% in FY9. In terms of number of prescriptions, the company figures among the top 15 generic companies in the US. It acquired a company called Nesher in the US to bolster the US portfolio by adding a pipeline of controlled release substances. The US pipeline (cumulative) consists of 26 filed ANDAs, 99 ICICI Securities Ltd Retail Equity Research Page 3

4 approvals and 7 launches. We expect US sales to grow at a CAGR of 31.7% to crore in FY15-17E. Exhibit 3: US pipeline to drive healthy US growth ,75.4 5,881.7 ( crore) , ,56.8 2,17.3 3,393.3 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E US Indian formulations Cadila is the third largest player in the domestic formulations market with a market share of 3.76% (MAT April 215) as per AIOCD. The acutechronic ratio for the company is 68:32. It has a dominating presence in therapies such as CVS (rank- third), GI (rank- third) and gynaecology (rank first). Almost 17% of its portfolio has been covered under DPCO 213. Domestic formulations comprise 31% of total revenues. It launched the first indigenous NCE Lipaglyn (CVS + anti-diabetic) in the Indian market. We expect Indian formulations to grow at a CAGR of 16.3% in FY15-17E to crore on the back of new launches including line extensions. Exhibit 4: New launches, line extensions to drive Indian growth 4 3, ,146.6 ( crore) ,289. 1,446. 1, , , , , FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E India ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 5: EBITDA to grow at CAGR of 26.2% in FY15-17E ( crore) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E EBITDA EBITDA Margins (%) 1 Exhibit 6: Adjusted net profit to grow at CAGR of 3.5% in FY15-17E ( crore) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Net Profit Net Profit Margins (%) 6 Exhibit 7: Trends in return ratios FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E RoNW (%) RoCE (%) ICICI Securities Ltd Retail Equity Research Page 5

6 Exhibit 8: Trends in quarterly financials ( Crore) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 YoY (%) QoQ (%) Revenue RM cost % of revenue Gross Profit Gross Profit Margin (%) bps -38 bps Employee cost % of revenue Other expenditure % of revenue Total Expenditure % of revenue EBITDA EBITDA Margins (%) bps 124 bps Depreciation Interest cost Other Income Forex & EO PBT Tax Expense Tax rate (%) PAT Minority Interest PAT after MI EPS ( ) SWOT Analysis Strengths - US product pipeline, one of the best MR productivity ( 49 lakh) in the industry. First Indian company to launch unique NCE (combination of CVS + anti-diabetic) in India. Strong return ratios Weakness - Too many revenue heads, struggling to cope up with margin pressure, higher acute presence in the domestic formulations. Opportunities - The US generics space. Threats - The company has received Form 483 from the USFDA for its Moraiya facility. If it transforms into severe action like warning letter or import alert, it would materially impact our future projections. Continued currency volatility in some emerging markets. ICICI Securities Ltd Retail Equity Research Page 6

7 Conference call highlights Cadila s cumulative ANDAs stood at 26, of which, it has received approvals for 99. In FY15, the company launched nine products, received eight approvals and filed 38 ANDAs In the domestic market, the company launched 55 (19 first time launch) products in FY15 including line extensions The management expects USFDA communication for its Moriya facility in the next couple of months The company expects gasacol HT and gprevacid USFDA approval in FY16 Cadila has 1 vaccines in the pipeline, of which it expects to launch one vaccine in India in FY16. It expects ~ 25 crore of revenues in the next three to five years from this portfolio Receivable days have increased to ~68 days in FY15 from 59 days in FY14 due to higher sales in the US The company has taken an average 3.5% product price hike in India Guidance Maintained sales guidance of 1, crore with EBITDA margin of 21% Tax rate of 17% Capex of ~ 55 crore (FY15 capex was 382 crore) Expect 2 approvals in the US and expects to file 4 ANDAs (>5% are from complex segments) R&D to be around 6-7% of sales. It expects to spend 75% of R&D in generic and the remaining on new innovations ICICI Securities Ltd Retail Equity Research Page 7

8 Valuation Cadila is witnessing a steep US growth trajectory on the back of aggressive filings and launches in the last few quarters. What is now striking is the quality of earnings in the US, which has shown a marked improvement over the last few quarters as reflected in an improvement in EBITDA margins. The US contribution in overall revenues is at all-time high. The filing to approval gap is also one of the highest among peers, assuring of consistency in US traction. Indian formulations are also likely to support upbeat margins. Most other sub-segments, however, continue to languish and struggle to provide meaningful visibility. Our revise target price stands at 1913, based on 2x (earlier 18x) FY17E EPS of Exhibit 9: One year forward PE Mar-6 Oct-6 May-7 Dec-7 Jul-8 Feb-9 Sep-9 Apr-1 Nov-1 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 [ Price 25.x 2.9x 19.6x 14.1x 11.4x Exhibit 1: One year forward PE of company vs. BSE Healthcare Index % discount 25 2 x Mar- 6 Dec- 6 Sep- 7 Jun- 8 Mar- 9 Dec- 9 Sep- 1 Jun- 11 Mar- 12 Dec- 12 Sep- 13 Jun- 14 Mar- 15 Cadila Healthcare CNX Pharma Exhibit 11: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE ( crore) (%) ( ) (%) (x) (X) (%) (%) FY FY FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 8

9 Company snapshot 2,5 Target Price: , 1,5 1, 5 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Mar-8 Jul-8 Nov-8 Jan-9 May-9 Jan-1 May-1 Jun-1 Jul-11 Dec-11 Jun-13 Dec-14 Event Cadila & Nycomed form a 5:5 joint venture company, which will manufacture 18 APIs for Nycomed Board of directors of Cadila Healthcare & Carnation Nutra-Analogue Foods approve demerger of the consumer product division of Cadila Healthcare into Carnation Cadila acquires Italy based R&D company Etna Biotech. Etna has a strong presence in developing research platforms for new vaccines Cadila launches Lamotrigine tablets & Lamotrigine chewable tablets in US market Zydus Hospira JV launches two oncology injectable products in the Europe region Cadila Healthcare receives approval from DGCI to conduct clinical trials for the H1N1 (swine flu) vaccine Cadila & Abbott sign an agreement in which Abbott will be marketing 24 branded generics of Cadila in 15 emerging markets Cadila Healthcare launches India s first vaccine for treating Swine flu (H1N1) Cadila Healthcare receives a warning letter for injectable facility in Ahmedabad Cadila acquires privately held company Biochem. Biochem has a strong presence in antibiotics, CVS, anti-diabetic and oncology segments Cadila becomes first Indian company to discover, develop and launch new chemical entity Lipaglyn in Indian market. The drug is used for treating diabetic dyslipidemia combines lipid and glucose lowering effects in one single molecule Launches biosimilar of Adalimumab, used for treatment of auto immune disorders, at a price much lower than the innovator drug Humira of AbbVie in India. Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m)n Change (m) 1 Zydus Family Trust 31-Mar Life Insurance Corporation of India 31-Mar Reliance Capital Asset Management Ltd. 31-Mar Norges Bank Investment Management (NBIM) 31-Mar HDFC Standard Life Insurance Company Limited 31-Mar Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar The Vanguard Group, Inc. 31-Mar Franklin Advisers, Inc. 28-Feb SBI Funds Management Pvt. Ltd. 31-Mar UTI Asset Management Co. Ltd. 31-Mar Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Franklin Templeton Asset Management (India) Pvt. Ltd m.66m Eastspring Securities Investment Trust Co. Ltd m -.81m Franklin Advisers, Inc. 5.54m.22m ICICI Prudential Asset Management Co. Ltd m -.33m HDFC Asset Management Co., Ltd. 5.25m.19m Life Insurance Corporation of India -7.28m -.26m Axis Asset Management Company Limited 3.27m.12m William Blair & Company, L.L.C m -.26m Capital Investment Trust Corporation 2.5m.1m HDFC Standard Life Insurance Company Limited -5.52m -.26m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9

10 Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15E FY16E FY17E Revenues 7,224. 8, , ,598.8 Growth (%) Raw Material Expenses 2, , ,943. 4,598.6 Employee Expenses 1,71.1 1,28.5 1, ,7.8 Other expenses 2, ,49.5 2, ,527.7 Total Operating Expenditure 6,23.9 6, , ,827.1 EBITDA 1,2.1 1,74.2 2, ,771.7 Growth (%) Depreciation Interest Other Income Extraordinary items PBT , , ,432.2 Total Tax MI Others.... PAT ,15.6 1,544. 1,958.2 Growth (%) EPS ( ) Cash flow statement Crore (Year-end March) FY14 FY15E FY16E FY17E Profit after Tax ,15.6 1,544. 1,958.2 Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities , , ,952.7 Loan & Advances.... (Inc)/dec in Fixed Assets Others (Inc)/dec in MI CF from investing activities One time adjustments Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in forex reserve Others CF from financing activities Net Cash flow Opening Cash Closing Cash ,291.1 Balance sheet Crore (Year-end March) FY14 FY15E FY16E FY17E Equity Capital Reserve and Surplus 3, , , ,198.9 Total Shareholders funds 3,439. 4,35.5 5,63.6 7,31.3 Total Debt 2,7.4 2,3.4 1,9.4 1,5.4 Deferred Tax Liability Minority Interest Other Non Curr.Liab. & LTP Total Liabilities 6,51.7 7,22.3 7, ,211.8 Gross Block 4,664. 5,196. 5,846. 6,396. Less: Acc Depreciation 1,54.2 1, , ,534.5 Net Block 3, , , ,861.5 Capital WIP Total Fixed Assets 4,15.3 4,11.3 4, ,43. Other Investments Liquid Investments Inventory 1, , , ,549.7 Debtors 1, , , ,39.8 Loans and Advances Other Current Assets Cash ,291.1 Total Current Assets 3, ,71.3 4, ,41.8 Creditors ,93.3 1,294. 1,529.8 Provisions Other current liability Total Current Liabilities 1, ,87.3 2, ,638.1 Net Current Assets 1, ,21.1 2,75.7 3,763.7 LT Loans and Advance Application of Funds 6,51.7 7,22.3 7, ,211.8 Key ratios (Year-end March) FY14 FY15E FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA margins PBT margins Net Profit margins Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Revenues Market Cap / Revenues Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 1

11 ICICIdirect.com coverage universe (Healthcare) ICICIdirect Healthcare coverage Universe I-Direct CMP TP Rating M Cap EPS ( ) PE(x) EV/EBITDA (x) RoCE (%) RoNW (%) Company Code ( ) ( ) ( Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Ajanta Pharma AJAPHA BUY Apollo Hospitals APOHOS BUY Aurobindo Pharma AURPHA BUY Biocon BIOCON HOLD Cadila Healthcare CADHEA BUY Cipla CIPLA HOLD Dr Reddy's Labs DRREDD BUY Glenmark Pharma GLEPHA HOLD Indoco Remedies INDREM BUY Ipca Laboratories IPCLAB HOLD Jubilant Life Sciences VAMORG HOLD Lupin LUPIN BUY Natco Pharma NATPHA HOLD Sun Pharma SUNPHA BUY Torrent Pharma TORPHA HOLD Unichem Laboratories UNILAB HOLD ICICI Securities Ltd Retail Equity Research Page 11

12 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 12

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