CMP = Rs 355 (as of Tuesday)
Price target: Rs 425
Result highlights
- The total operating income of Cadila Healthcare (Cadila) increased by 28.4% year on year (yoy) to Rs 572.2 crore in Q1FY2008, driven by a 19.7% growth in the domestic business and a 49.9% rise in the exports. The sales growth was ahead of our expectations.
- The domestic business was driven by an 18.2% increase in the sales of branded formulations, a 44% rise in the sales of active pharmaceutical ingredients (APIs) and a 52.4% jump in the consumer business.
- The improved performance of the French business (a growth of 49.8% yoy) and the US business (a growth of 122.6% yoy) contributed largely to the robust growth in the exports.
- The operating profit margin (OPM) shrank by 70 basis points to 19.4%, largely due to a 245-basis-point decline in the gross margin due to lower realisation on exports and a changing product mix. Consequently, the operating profit grew by 23.8% to Rs 111.2 crore. The net profit surpassed all expectations.
- In order to incorporate the impact of the recent acquisitions and the appreciation of the rupee against all the other major currencies (on account of which the realisations on exports have reduced), we are revising our estimates for Cadila. We have upgraded our revenue estimates by 5.2% and 5.1% to Rs 2,241.0 crore and Rs 2,600.8 crore for FY2008E and FY2009E respectively.
- At the current market price of Rs 355, the company is trading at 16.4x its FY2008 and at 13.6x its FY2009 estimated earnings. With all the growth drivers in place and on track, I reiterate Buy recommendation on Cadila with a price target of Rs 425.
