Cadila Healthcare share price: Sharekhan Retains Buy rating with a revised price target of Rs 560

Cadila Healthcare reported a healthy set of results for Q3 FY21, though earnings missed estimates marginally, following a marginal miss in revenue. Consolidated sales at Rs 3796 cr grew by 4% yoy, driven by strong growth in India business, up 19.5% yoy. While the US business was weak, declining by around 4% yoy due to a weak flu season coupled with some inventory correction.

Cadila Healthcare highlights operating profit margin (OPM) for the Q3 expanded by 220 bps yoy to 21.3%, led by savings in other expenses. Backed by low interest cost and tracking the operating performance, adjusted PAT for the quarter stood at Rs 527 cr, up 40% y-o-y. Cadila Healthcare is getting in a sweet spot, wherein both its geographies have an improved growth outlook.

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The US business, which accounts for close to almost half its revenue, is on a strong footing says Cadila Healthcare. Sturdy new product pipeline and ramp up in the recent product launches would be key growth drivers. Efforts to build up presence in the injectables space, which offers strong growth potential, would unfold over the medium to long term. The India business is also showing signs of pick up and management expects to sustain the growth momentum. Solid presence in the chronic and sub-chronic segments (which are the key growth drivers for Indian pharmaceutical markets) and a gradual improvement for the acute segment provide ample growth visibility.

Further Cadila Healthcare’s Covid Vaccine has entered phase III of clinical trials and has elicited a strong immune response. The final approval for the vaccine is expected in Q1 FY22 post the completion of the trials and could offer substantial growth opportunities upon approval. Cadila Healthcare has substantially reduced its debt in 9M FY21. This augurs well and would strengthen the financial muscle of Cadila Healthcare.

Cadila Healthcare’s Key positives:

India business reported double-digit 19.5% growth backed by double-digit growth across all segments
OPM expanded by 220 bps y-o-y, primarily led by lower operating cost
Debt repayment of Rs 2900 cr in 9M FY21

Cadila Healthcare’s Key negatives:

US sales declined by 4% yoy because of the weak flu season and inventory correction

Cadila Healthcare Key Risks:

Price erosion in the US generic business could hurt performance
Delay in resolution of USFDA issues at Moraiya plant
Forex volatility could impact earnings