Q4 broadly in line; US remain cornerstone of growth May 26, 2018 Surajit Pal surajitpal@plindia.com +912266322259 Rating Accumulate Price Rs383 Target Price Rs438 Implied Upside 14.4% Sensex 34,925 Nifty 10,605 (Prices as on May 25, 2018) Trading data Market Cap. (Rs bn) 659.8 Shares o/s (m) 1,725.0 3M Avg. Daily value 392.7 Major shareholders Promoters 74.96% Foreign 8.70% Domestic Inst. 7.94% Public & Other 8.40% Stock Performance (%) 1M 6M 12M Absolute (4.9) (14.3) (10.4) Relative (6.1) (18.0) (24.0) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019 19.5 17.0 14.3 2020 21.9 20.3 8.0 Price Performance (RIC: CADI.BO, BB: CDH IN) (Rs) 500 300 100 0 May17 Jul17 Source: Bloomberg Sep17 Nov17 Jan18 Mar18 May18 Result in line; glialda, gtamiflu susp, integration of MSD s brands lead growth: With 27% YoY GST adj. growth in India formulations, seasonal benefits of Tamiflu suspensions and glialda, Cadila s (CDH) revenues, adj. EBITDA and PAT grew by 28%, 92% and 53% YoY, respectively, slightly ahead of our estimates by 5%, 3% and 6% respectively in. The strong traction of glialda and volume growth in US generics as well as additional sales from six brands acquired from MSD in India led to the strong performance. With successful FDA resolution on Moraya and 150 pending ANDAs, CDH guided for 1520 launches in FY19. Adj. EBITD margin increased by 30bps QoQ on account of better product mix and rationalisation of cost centers. While there is improvement in restocking of inventory from channel partners, CDH guided for further room for improvement in FY19E. Tax rate was guided to be less than 25% in FY19E Vs tax rate of 24% in FY18E. Key launches to drive US generic: CDH believes they have achieved the peak benefit of limited competition in Tamiflu suspension in. Management expects launch of its own gasacol HD to benefit in FY19E and drive growth in US generic over the high base of sales (due to glailda) in FY18. Currently, CDH markets authorised generic of Asacol HD in US. gtoprol XR and slow entry of competiton in glialda will benefit the company. Management maintians that Prevacid ODT, transdermals, Injectables and Albendazole to be key launches in FY19E. ValuationMaintain Accumulate, reduce TP at Rs438: Management guided double digit growth in India formulations and mainatained growth in US generics in FY19E. Ebitda margin post adjustment of oneoff beenfits in revenues (glialda, gtamiflu) to improve by 100bps in FY19E. CDH trades at PER of 19.6x (FY19E) and 17.5x (FY20E). With downward revision of PERs of the industry, we are reducing our assigned PER to 20x from 22x of FY20E. We maintain our Accumulate with reduced TP of Rs438. Key financials (Y/e March) 2017 2018 2019E 2020E Revenues 88,799 116,506 127,662 140,551 Growth (%) (8.1) 31.2 9.6 10.1 EBITDA 11,582 25,617 28,213 31,062 PAT 9,520 17,956 19,944 22,425 EPS (Rs) 9.3 17.5 19.5 21.9 Growth (%) (59.3) 88.6 11.1 12.4 Net DPS (Rs) 1.5 1.5 1.5 1.5 Profitability & Valuation 2017 2018 2019E 2020E EBITDA margin (%) 13.0 22.0 22.1 22.1 RoE (%) 15.0 24.3 23.0 21.3 RoCE (%) 9.3 14.8 16.0 16.8 EV / sales (x) 4.8 3.7 3.2 2.9 EV / EBITDA (x) 37.0 16.6 14.7 12.9 PE (x) 41.1 21.8 19.6 17.5 P / BV (x) 5.6 5.0 4.1 3.4 Net dividend yield (%) 0.4 0.4 0.4 0.4 Source: Company Data; PL Research Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Result Overview Y/e March YoY gr. (%) FY18 FY17 YoY gr. (%) Net Sales 32,502 25,249 28.7 32,596 119,364 96,253 24.0 Raw Material 10,833 9,284 16.7 11,246 41,535 34,451 20.6 % of Net Sales 33.3 36.8 34.5 34.8 35.8 Personnel Cost 4,915 4,005 22.7 4,608 18,545 15,002 23.6 % of Net Sales 15.1 15.9 14.1 15.5 15.6 Others 8,050 7,324 9.9 8,330 30,809 27,764 11.0 % of Net Sales 24.8 29.0 25.6 25.8 28.8 Total Expenditure 23,798 20,613 15.5 24,184 90,889 77,217 17.7 EBITDA 8,704 4,636 87.7 8,412 28,475 19,036 49.6 Margin (%) 26.8 18.4 25.8 23.9 19.8 Depreciation 1,440 1,145 25.8 1,473 5,388 3,750 43.7 EBIT 7,264 3,491 108.1 6,939 23,087 15,286 51.0 Other Income 287 731 (60.7) 411 1,132 1,286 (12.0) Interest 154 99 55.6 135 911 450 102.4 PBT 7,397 4,123 79.4 7,215 23,308 16,122 44.6 ExtraOrd. Inc./Exps. 47 249 (81.1) (4) (94) (44) 113.6 Total Taxes 1,442 19 7,489.5 1,786 5,644 1,289 337.9 ETR (%) 19.5 0.5 24.8 24.2 8.0 Reported PAT 5,908 3,855 53.3 5,433 17,758 14,877 19.4 May 26, 2018 2
Exhibit 2: Major Sources of Revenues Y/e March YoY gr. (%) FY18 FY17 YoY gr. (%) Domestic 12,150 11,495 5.7 12,938 46,344 45,359 2.2 % of Net Sales 38.5 46.9 40.5 39.8 48.2 Formulation 8,838 8,402 5.2 9,168 33,324 32,441 2.7 % of Net Sales 28.0 34.3 28.7 28.7 34.5 API 900 934 (3.6) 1,137 3,655 3,795 (3.7) % of Net Sales 2.9 3.8 3.6 3.1 4.0 Consumer HC & Others 1,284 1, 7.0 1,291 4,920 4,593 7.1 % of Net Sales 4.1 4.9 4.0 4.2 4.9 Animal Healthcare 1,128 959 17.6 1,342 4,445 4,530 (1.9) % of Net Sales 3.6 3.9 4.2 3.8 4.8 Exports 19,377 13,031 48.7 18,981 69,963 48,797 43.4 % of Net Sales 61.5 53.1 59.5 60.2 51.8 Formulation 18,962 12,518 51.5 18,451 68,370 47,206 44.8 % of Net Sales 60.1 51.0 57.8 58.8 50.1 North America 16,424 9,851 66.7 15,838 58,348 37,090 57.3 EU 602 620 (2.9) 649 2,403 2,623 (8.4) LatAM 663 603 10.0 758 2,605 2,445 6.5 Emerging markets 1,273 1,444 (11.8) 1,206 5,014 5,048 (0.7) Income from JVs 415 513 (19.1) 530 1,593 1,591 0.1 % of Net Sales 1.3 2.1 1.7 1.4 1.7 Total 31,527 24,526 28.5 31,919 116,307 94,156 23.5 Exhibit 1: India Formulations 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Q1FY17 May 26, 2018 3
Exhibit 2: US Generics: benefits of additional HCQS sales set to be neutralised in Q3FY16E 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Exhibit 3: Consumer Healthcare: Growth remains listless 1, 1, Exhibit 4: EU Sales: Going down further with lack of direction 1, 1, May 26, 2018 4
Exhibit 5: LatAm Sales: Depreciated currencies takes toll on reported growth 900 700 500 300 100 Exhibit 6: Emerging Markets: Manages to grow despite falling currency 1, 1, 1, Exhibit 7: Income from JV: Additions of new products, clients drive growth 1, 1, May 26, 2018 5
Exhibit 8: Sales & Sales Growth Sales YoY gr. (%) (RHS) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 50.0 40.0 30.0 20.0 10.0 (10.0) Exhibit 9: Other Operating Revenues: IPR sales of ANDA drives last two qtr sales 1, 1, Exhibit 10: EBITDA & EBITDA Margin EBITDA Margin (%) (RHS) 10,000 8,000 6,000 4,000 2,000 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% May 26, 2018 6
Exhibit 11: PAT & PAT Margins PAT Margin (%) (RHS) 7,000 6,000 5,000 4,000 3,000 2,000 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% May 26, 2018 7
Income Statement Net Revenue 88,799 116,506 127,662 140,551 Raw Material Expenses 34,451 41,535 42,767 47,085 Gross Profit 54,348 74,971 84,895 93,467 Employee Cost 15,002 18,545 19,149 21,083 Other Expenses 27,764 30,809 37,533 41,322 EBITDA 11,582 25,617 28,213 31,062 Depr. & Amortization 3,750 5,388 6,735 7,719 Net Interest 450 911 557 410 Other Income 3,383 4,188 4,596 5,060 Profit before Tax 10,765 23,506 25,517 27,993 Total Tax 1,289 5,644 5,869 5,879 Profit after Tax 9,476 17,862 19,648 22,114 ExOd items / Min. Int. (50) (470) (296) (311) Adj. PAT 9,520 17,956 19,944 22,425 Avg. Shares O/S (m) 1,024.0 1,024.0 1,024.0 1,024.0 EPS (Rs.) 9.3 17.5 19.5 21.9 Cash Flow Abstract C/F from Operations (50,379) 10,148 3,857 4,655 C/F from Investing 28,423 10,022 10,022 10,022 C/F from Financing 13,152 (13,181) (13,593) (10,563) Inc. / Dec. in Cash (8,805) 6,989 286 4,113 Opening Cash 9,276 471 7,460 7,746 Closing Cash 471 7,460 7,746 11,860 FCFF (10,875) 10,497 12,819 13,804 FCFE 16,777 82 1,639 5,507 Key Financial Metrics Growth Revenue (%) (8.1) 31.2 9.6 10.1 EBITDA (%) (51.3) 121.2 10.1 10.1 PAT (%) (59.3) 88.6 11.1 12.4 EPS (%) (59.3) 88.6 11.1 12.4 Profitability EBITDA Margin (%) 13.0 22.0 22.1 22.1 PAT Margin (%) 10.7 15.4 15.6 16.0 RoCE (%) 9.3 14.8 16.0 16.8 RoE (%) 15.0 24.3 23.0 21.3 Balance Sheet Net Debt : Equity 0.5 0.4 0.2 0.1 Net Wrkng Cap. (days) 107 101 104 104 Valuation PER (x) 41.1 21.8 19.6 17.5 P / B (x) 5.6 5.0 4.1 3.4 EV / EBITDA (x) 37.0 16.6 14.7 12.9 EV / Sales (x) 4.8 3.7 3.2 2.9 Earnings Quality Eff. Tax Rate 12.0 24.0 23.0 21.0 Other Inc / PBT 31.4 17.8 18.0 18.1 Eff. Depr. Rate (%) 5.4 6.8 7.5 7.8 FCFE / PAT 176.2 0.5 8.2 24.6. Balance Sheet Abstract Shareholder's Funds 69, 77,955 95,478 115,483 Total Debt 52,072 41,658 30,478 22,180 Other Liabilities 4,865 4,004 3,290 2,676 Total Liabilities 126,537 123,616 129,246 140,340 Net Fixed Assets 61,490 65,984 69,250 71,531 Goodwill 11,494 11,494 11,494 11,494 Investments 491 491 491 491 Net Current Assets 34,062 28,935 33,081 43,534 Cash & Equivalents 15,435 7,460 7,746 11,860 Other Current Assets 44,297 51,291 56,373 62,233 Current Liabilities 25,670 29,816 31,039 30,558 Other Assets 19,000 16,712 14,930 13,289 Total Assets 126,537 123,616 129,246 140,340 Quarterly Financials Y/e March Net Revenue 21,973 32,340 32,596 32,502 EBITDA 2,773 8,571 8,412 8,704 % of revenue 12.6 26.5 25.8 26.8 Depr. & Amortization 1,220 1,267 1,473 1,440 Net Interest 219 406 135 154 Other Income 210 225 411 287 Profit before Tax 1,544 7,123 7,215 7,397 Total Tax 293 2,123 1,786 1,442 Profit after Tax 1,598 4,772 5,663 5,751 Adj. PAT 1, 4,898 5,663 5,592 Key Operating Metrics US Formulations 36,603 56,462 63,237 70,631 Domestic Formulations 32,650 33,727 38,112 41,923 Consumer Healthcare 4,643 4,980 5,174 5,376 Income from JVs 1, 1,792 1,935 2,071. May 26, 2018 8
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