CMP = Rs 395 (as of Tuesday)
Price target: Rs 425
Key points
- Cadila Healthcare (Cadila) has signed an agreement to acquire 100% stake in Quimica e Farmaceutica Nikkho do Brasil Ltda. (Nikkho) for a consideration of around $26 million (ie about 1x of Cadila's annual sales).
- Nikkho had posted sales of US$ 26 million for CY2006. It currently markets 22 products under 13 different brands. It also has nearly 50 registered brands that are yet to be launched.
- The acquisition is a strategic one for Cadila, as it would help the company to foray into the high-margin branded generic market of Brazil.
- Anticipating 18% and 15% growth for Nikkho in FY2008 and FY2009 respectively, we estimate the latest acquisition would contribute about 5-6% of our estimated revenue in FY2009.
- At the current market price of Rs 395, Cadila is trading at 17.9x its estimated FY2008 earnings and 14.8x its estimated FY2009 earnings.
- Considering the strong growth momentum of the company, I maintain Buy recommendation on the stock with a price target of Rs 425.
