Sharekhan optimistic on Cadila Healthcare stock's prospects; recommends a BUY with price target of Rs 720

Brokerage firm Sharekhan says that Cadila Healthcare said that the company is making concentrated efforts to build a strong presence in areas of complex generics, injectable, and specialty portfolios in the US, which offer strong growth potential, which could unfold over the medium to long term. It recommends a buy on this stock with a target price of Rs 720.

Collectively, emergency approval for Virafin, expected approval for the vaccine coupled with the likely traction in India as well as the US business would be key growth drivers, it said. Further, Cadila is progressing in its efforts to build a growth platform encompassing - New Chemical Entities (NCEs), biologics, vaccines, and specialty portfolio that could start delivering over the long term and provide comfort on growth ahead, Sharekhan said.

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Cadila Healthcare Key Risks:

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

Cadila Healthcare's wholly owned subsidiary Zydus Animal Health and Investments Limited has entered into a business transfer agreement to sell and transfer its Animal Healthcare - Established Markets Undertaking to a private equity player led consortium on a slump sale basis for a consideration of Rs 2921 cr. The company had announced this move on Wednesday.

As per the provisional figures for FY2021, the divested business had revenue of Rs 600 cr (4% of the consolidated revenues) and EBITDA of Rs 150 cr. Divestiture of the animal health business is part of the strategic initiative by the management to prune its diversified portfolio so as to be able to focus on the core business for growth and, hence, augurs well for Cadila. The company plans to use the proceeds from the transaction to reduce its debt levels and aims for net debt of around Rs 1000 crore.

Further, Cadila has been significantly progressing on the COVID-related treatments with Virafin (Pegylated Interferon alpha-2b) getting a restricted emergency approval for treating COVID-19 patients. Being a single dose subcutaneous injection, Virafin offers advantage of convenient administration and monitoring, while the cost is almost similar to that of Remdesivir, which is widely used. Moreover, Cadila’s COVID-19 vaccine candidate is undergoing Phase 3 trials and the company expects data from the trials in May 2021 post which it could proceed to seek regularity nod. Cadila’s US and India business are also expected to gain traction. Cadila Healthcare has been outperforming Indian pharmaceutical markets (IPM) growth and the trend is expected to continue going ahead as well backed by management’s strategy to focus on the high-growth business of domestic formulations and consumer wellness, highlights Sharekhan.