Cadila Healthcare's performance for the March'15 quarter comprehensively surprised the street. The company's top line growth and profitability was largely helped by US sales, which at about 43% of topline grew 44.4%. This drove overall sales higher by 16.2% year-on-year, offsetting the domestic sales which still remain weak (up just 8.8%).
US sales were helped largely by anti-malarial generic hydroxychloroquine, while other generics as those of urinary tract drug Urocit-k too continue to do well. Domestic sales continued to bear the brunt of new drug pricing policy and losing manufacturing rights of pain relief brand Buscopan and laxative brand Dulcolux (loss of sales of about Rs 70-80 crore per annum).
While the company's sales of Rs 2,288 crore were marginally lower than Bloomberg consensus estimate of Rs 2,306 crore, earnings before interest, tax, depreciation and amortisation (EBITDA) at Rs 496 crore were much better than estimates of Rs 466 crore. Lower costs as well as lower R&D expenses helped. Thus margins at 21.7% came better than expected 20.2%. Consequently, profits at Rs 351 crore were higher than expectations of Rs 305 crore. Adjusted for one-offs at Rs 387 crore the profit grew 47% year-on-year and 39.6%, sequentially. The stock gained 1.8% to close at Rs 1,688 on Friday and is up nearly five% in three sessions post the results.
Notably, Cadila's strong performance is likely to continue. With top line for FY15 growing by a healthy 20%, margins have also rebounded from close to 16.6% in FY14 to 20.1%. Analysts expect the growth momentum to continue besides healthy gains on the margin front. Management expects another 100 basis point improvement in margins during FY16.
On the flip side, the outcome of observations of USFDA on its Moraiya plant is pending. The stock, which had more than doubled from 52-week low of Rs 872.55 on 19 May'14 to all-time high of Rs 1,998 on 7 April'2015, had corrected as investor sentiments had turned a bit cautious after the inspection of Moraiya plant by FDA last month. While the street was expecting some negative observations, the fears till now have proved futile. Analysts at Ambit had observed that the FDA observations primarily pertain to customer feedback on complaints and are not serious. The complete resolution of 483 can boost investor confidence further.
Meanwhile, Cadila's product pipeline for US remains decent with 260 filings and 99 approvals. The approvals expected in niche transdermals, nasal sprays, and controlled release products can accelerate its growth. Analysts also expect Cadila's domestic sales growth to bounce back as monthly data suggest that its pharma sales growth has crossed double digits.
Edelweiss' analysts add that Cadila expects the pace of ANDA approval to pick up (15-20 in FY16) as several facilities have been cleared by USFDA. "We believe FY16 guidance of Rs 10,000 crore revenue and 21% margins are conservative if these approvals come through." They estimate Cadila's EPS to clock a CAGR of 34% over FY15-17.
Most analysts remain positive on the stock. Their target prices point to a potential upside of 8-20%
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