Cadila Healthcare Ltd
Recommendation: Buy
CMP: Rs 595.00
Target Price: Rs 850
- US generic business to grow exponentially: Cadila Healthcare (Cadila) has made a big entry into the regulated markets of US formulations this year. In the coming years its revenues from the high-margin regulated markets are expected to increase exponentially.
- It has a strong research and product pipeline with 30 products expected to receive generic approval by FY2007.
- Strong and steady domestic formulation business to provide a solid base: Cadila is ranked number five in the domestic formulation business in India. It plans to introduce over 40 products in the Indian market in the next two years. We expect the formulation business to be a steady revenue source in the future, showing a higher-than-industry growth rate.
- Key subsidiaries to start adding value: Cadila has subsidiaries in France, the USA and Brazil, and these were making losses till this year. The French business, earlier expected to break even in FY2009, is now expected to do so even earlier, in FY2008.
- The US subsidiary is expected to earn good profits for Cadila from FY2007 onwards. I expect these subsidiaries to collectively make a profit of over Rs 32 crore in FY2008 as compared with a loss of over Rs 30 crore in FY2005.
- Buy with a price target of Rs 850: A strong research-based, integrated pharma player, Cadila is now spreading its wings to the high-margin regulated markets.
- I expect its consolidated profit after tax (PAT) to grow from Rs117.9 crore in FY2005 to Rs 293.8 crore in FY2008, at a 36% CAGR. Considering its strong growth prospects, we initiate our Buy recommendation on Cadila with a 12-month price target of Rs850, which is a 43% upside to the current market price of Rs595.
