1QFY2017 Result Update | Pharmaceutical
August 16, 2016
Cadila Healthcare
ACCUMULATE
CMP
`372
Performance Highlights
Target Price
`400
Investment Period
12 Months
Y/E March (` cr)
1QFY2017 4QFY2016
% chg (qoq) 1QFY2016
% chg (yoy)
Net sales
2,216
2376
(6.7)
2267
(2.2)
Stock Info
Other income
86
99
(12.7)
140
(38.4)
Sector
Pharmaceutical
Gross profit
1442
1553
(7.1)
1468
(1.8)
Market Cap (` cr)
38,099
Operating profit
453
508
(10.8)
460
(1.5)
Net debt (` cr)
1,550
Adj. Net profit
356
388
(8.2)
462
(22.9)
Beta
0.7
Source: Company, Angel Research
52 Week High / Low
454 / 296
Avg. Daily Volume
134,561
For 1QFY2017, the company posted lower than expected results. The company
Face Value (`)
1
posted sales of `2,216cr V/s `2,607cr expected and V/s `2,267cr in 1QFY2016,
BSE Sensex
27,860
a yoy de-growth of 2.2%. On the operating front, the EBITDA margin came in at
Nifty
8,592
20.4% V/s 20.9% expected and V/s 20.3% in 1QFY2016. The dip in the OPM
Reuters Code
CADI.BO
was saved in spite of an underperformance on the sales front as the GPM
Bloomberg Code
[email protected]
improved to 65.1% V/s 64.8% in 1QFY2016. The Adj. net profit came in at
`356cr V/s `489cr expected and V/s `462cr in 1QFY2016, a yoy de-growth of
22.9%. We maintain our accumulate rating.
Shareholding Pattern (%)
Promoters
74.8
Results lower than expected: Company posted sales of `2,216cr V/s `2,607cr
MF / Banks / Indian Fls
9.7
expected and V/s `2,267cr in 1QFY2016, a yoy de-growth of 2.2%. The dip in
FII / NRIs / OCBs
9.7
sales was owing to the USA business (`848.3cr) posting a yoy dip of 13.9%. On
Indian Public / Others
5.8
the operating front, the EBITDA margin came in at 20.4% V/s 20.9% expected
and V/s 20.3% in 1QFY2016. The dip in the OPM was saved in spite of an
underperformance on the sales front as the GPM improved to 65.1% V/s 64.8%
Abs.(%)
3m 1yr 3yr
in 1QFY2016. The Adj. net profit came in at `356cr V/s `489cr expected and V/s
Sensex
11.1
(0.5)
46.4
`462cr in 1QFY2016, a yoy de-growth of 22.9%.
Cadila
(0.8)
(6.9)
97.2
Outlook and valuation: We expect Cadila’s net sales to post a 17.8% CAGR to
`13,148cr and EPS to report a 15.8% CAGR to `20.0 over FY2016-18E. We
maintain our accumulate rating on the stock.
3-Year Daily Price Chart
500
Key financials (Consolidated)
450
400
Y E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
350
Net sales
8,497
9,469
11,126
13,148
300
250
% chg
20.4
11.4
17.5
18.2
200
150
Net profit
1,159
1,524
1,752
2,044
100
50
% chg
41.5
31.5
14.9
16.7
0
EPS
11.3
14.9
17.1
20.0
EBITDA margin (%)
18.8
21.2
22.0
22.0
Source: Company, Angel Research
P/E (x)
28.2
21.5
18.7
16.0
RoE (%)
30.1
31.7
28.8
26.6
RoCE (%)
20.2
23.1
24.2
24.3
P/BV (x)
7.7
6.1
4.8
3.8
Sarabjit Kour Nangra
EV/Sales (x)
4.0
3.5
2.9
2.3
+91 22 39357600 Ext: 6806
EV/EBITDA (x)
21.1
16.6
13.2
10.7
[email protected]
Source: Company, Angel Research; Note: CMP as of August 11, 2016
Please refer to important disclosures at the end of this report
1
Cadila Healthcare | 1QFY2017 Result Update
Exhibit 1: 1QFY2017 performance (Consolidated)
Y/E March (` cr)
1QFY2017
4QFY2016
% chg (qoq) 1QFY2016
% chg (yoy)
FY2016
FY2015
% chg
Net Sales
2,216
2,376
(6.7)
2,267
(2.2)
9,469
8,497
11.4
Other Income
86
99
(12.7)
140
(38.4)
460
210
119.2
Total Income
2,302
2,474
(6.9)
2,407
(4.3)
9,930
8,707
14.0
Gross profit
1442
1553
(7.1)
1468
(1.8)
6192
5106
21.3
Gross margin (%)
65.1
65.4
64.8
65.4
60.1
Operating profit
453
508
(10.8)
460
(1.5)
2012
1600
25.8
Operating Margin (%)
20.4
21.4
20.3
21.2
18.8
Financial Cost
14
10
40.0
12
17.6
49
68
(28.5)
Depreciation
84
78
7.7
69
22.0
302
287
5.3
PBT
441
518
(14.9)
519
(15.0)
2122
1455
45.8
Tax
97
126
(23.3)
72
34.7
571
259
120.5
Adj. PAT before
344
392
(12.2)
468
(26.4)
1,551
1,196
29.7
Extra-ordinary item
Exceptional loss/(gain)
6
(1)
0
2
(9)
Minority
18
(3)
(635.3)
8
30
36
Reported PAT
343
389
(11.7)
460
(25.4)
1523
1,151
32.3
Adj. PAT
356
388
(8.2)
462
(22.9)
1524
1,159
31.5
EPS (`)
3.5
3.8
4.5
14.9
11.3
Source: Company, Angel Research
Exhibit 2: 1QFY2017 - Actual vs. Angel estimates
(` cr)
Actual
Estimates
Variance
Net Sales
2,216
2,607
(15.0)
Operating profit
453
544
(16.7)
Tax
97
112
(13.7)
Net profit
356
489
(27.2)
Source: Company, Angel Research
Revenue lower than our expectation
The company posted sales of `2,216cr V/s `2,607cr expected and V/s `2,267cr in
1QFY2016, a yoy de-growth of 2.2%. The dip in sales was due to the USA
business (`848cr), posting a yoy dip of 13.9%. Indian formulations (`786.2cr)
posted a yoy growth of
6.2%. Consumer wellness
(`116.1cr) and Animal
healthcare & others (`109.7cr) posted a growth of 12.2% and 43.8% yoy
respectively.
US revenues declined primarily owing to increased generic competition in HCQS.
The company launched 2 new products in the US in 1QFY2017 and received 3
product approvals during the quarter. Cumulatively the company has received 106
ANDA approvals till date. Additionally Cadila filed 6 ANDAs in 1QFY2017;
cumulatively the company has filed 275 ANDAs in the US market. In India, fixed
dose combination ban impacted domestic branded business exhibited
6.2%
growth in 1QFY2017. The Management suggested of returning to double digit
growth from 2QFY2017.
August 16, 2016
2
Cadila Healthcare | 1QFY2017 Result Update
Exhibit 3: Sales trend in the US and Europe
1,200
1,072
1,004
985
961
1,000
848
800
600
400
200
84
65
76
70
79
0
1QFY2016
2QFY2016
3QFY2016
4QFY2016
1QFY2017
US
Europe
Source: Company, Angel Research
The growth in the domestic market (~49% of sales) was of 9.0% yoy, mainly led by
formulations (`7,86.2cr) which grew by 6.2% yoy. API (`97.6cr) on the other hand
de-grew by 0.4% yoy.
Exhibit 4: Sales trend in Domestic Formulation and Consumer Wellness Divisions
900
786
767
800
742
751
713
700
600
500
400
300
200
111
112
118
117
116
100
0
1QFY2016
2QFY2016
3QFY2016
4QFY2016
1QFY2017
Domestic Formulation
Consumer division
Source: Company, Angel Research
OPM mostly in line with expectation
On the operating front, the EBITDA margin came in at 20.4% V/s 20.9% expected
and V/s 20.1% in 1QFY2016. The dip in the OPM was contained as the GPM
improved from 65.1% V/s 64.3% in 1QFY2016. R&D expenditure during the
quarter came in at 7.3% V/s 7.1% of sales in 1QFY2016.
August 16, 2016
3
Cadila Healthcare | 1QFY2017 Result Update
Exhibit 5: OPM trend
23.0
22.5
22.6
22.0
21.5
21.0
21.4
21.0
20.5
20.4
20.0
20.1
19.5
19.0
18.5
1QFY2016
2QFY2016
3QFY2016
4QFY2016
1QFY2017
Source: Company, Angel Research
Net profit up 0.5% yoy: The Adj. net profit came in at `356cr V/s `489cr expected
and V/s `462cr in 1QFY2016, a yoy de-growth of 22.9%.
Exhibit 6: Adjusted Net profit trend
500
462
450
391
390
388
400
356
350
300
250
200
150
100
50
0
1QFY2016
2QFY2016
3QFY2016
4QFY2016
1QFY2017
Source: Company, Angel Research
Concall takeaways
Effective tax rate to remain at 20%-22% levels in FY2017E.
R&D as a percentage of sales to be at 7-8% in FY2017.
Management expects growth in domestic market to be in double digits in the
remaining quarters.
Moraiya inspection formally closed; Warning letter resolution intimation to
come separately.
Company expects 35 ANDA fillings to be done by FY2017.
August 16, 2016
4
Cadila Healthcare | 1QFY2017 Result Update
Recommendation rationale
Strong domestic portfolio: Cadila is the fifth largest player in the domestic market
with sales of about `2,973cr in FY2016; the domestic market contributes ~39% to
its top-line. The company enjoys a leadership position in the CVS, GI, women
healthcare and respiratory segments, and has a sales force of 4,500 executives.
The company, on an aggressive front, launched more than 75 new products in
FY2014. During FY2009-14, the company reported a ~13% CAGR in its top-line
in the domestic formulation business.
Further, the company has a strong consumer division through its stake in Zydus
Wellness, which has premium brands such as Sugarfree, Everyuth and Nutralite,
under its umbrella. This segment which contributes ~4.7% of sales, registered a
growth of 3.2% during FY2016.
Going forward, the company expects the segment to grow at an above-industry
rate on the back of new product launches and field force expansion. In FY2014,
sales were lower; however, FY2016 witnessed a rebound. During FY2016-18E, we
expect the domestic segment to grow at a CAGR of 9.6%.
Exports on a strong footing: Cadila has a two-fold focus on exports, wherein it is
targeting developed as well as emerging markets, which contributed around 61%
to its FY2016 top-line. The company has established a formidable presence in the
developed markets of US, Europe (France and Spain) and Japan. In the US, the
company achieved critical scale of `3,393cr on the sales front in FY2016. The
growth in exports to the US along with other regions like Europe would be driven
by new product launches, going forward. Overall, exports are expected to post a
CAGR of 17.5% over FY2016-18E.
Outlook and valuation
We expect Cadila’s net sales to post a 17.8% CAGR to `13,148cr and EPS to
report a 15.8% CAGR to `20.0 over FY2016-18E. We maintain our accumulate
on the stock.
Exhibit 7: Key Assumptions
Key assumptions
FY2017E
FY2018E
Domestic growth (%)
13.0
15.0
Exports growth (%)
20.0
20.0
Growth in employee expenses (%)
24.1
15.8
Operating margins (excl tech. know-how fees) (%)
22.0
22.0
Capex (` cr)
650
650
Source: Company, Angel Research
August 16, 2016
5
Cadila Healthcare | 1QFY2017 Result Update
Exhibit 8: One-year forward PE band
500
400
300
200
100
0
Price
7x
14x
21x
28x
Source: Company
Company background: Cadila Healthcare‘s operations range across API,
formulations, animal health products and cosmeceuticals. The group has global
operations spread across USA, Europe, Japan, Brazil, South Africa and 25 other
emerging markets. Having already achieved the US$1bn sales mark in 2011, the
company aims to be a research-driven pharmaceutical company by 2020.
Exhibit 9: Recommendation Summary
Company
Reco
CMP Tgt. price Upside
FY2018E
FY16-18E
FY2018E
(`)
(`)
% PE (x) EV/Sales (x) EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
639
-
-
21.0
2.8
13.2
(10.8)
27.5
25.3
Aurobindo Pharma Buy
750
877
16.9
15.9
2.6
11.0
18.1
22.5
26.1
Cadila Healthcare Accumulate
372
400
7.5
18.6
2.8
12.7
15.8
24.3
26.6
Cipla
Neutral
523
-
-
19.2
2.4
13.3
20.4
13.5
15.2
Dr Reddy's
Neutral
3,013
-
-
19.1
2.8
11.2
6.9
18.1
17.1
Dishman Pharma Neutral
165
-
-
15.8
1.7
8.0
(1.1)
9.6
10.2
GSK Pharma*
Neutral
3,109
-
-
52.3
6.7
35.8
15.9
35.8
31.8
Indoco Remedies Sell
318
225
(29.2)
20.4
2.4
13.0
31.5
19.1
19.2
Ipca labs
Buy
523
613
17.2
26.6
1.8
12.0
17.9
11.8
14.9
Lupin
Buy
1,580
1,809
14.5
22.8
3.7
14.0
17.2
24.4
20.9
Sanofi India
Neutral
4,348
-
-
25.7
3.2
18.5
21.2
24.9
28.4
Sun Pharma
Accumulate
809
944
12.6
24.7
5.0
16.0
22.0
33.1
18.9
Source: Company, Angel Research; Note: *December year ending
August 16, 2016
6
Cadila Healthcare | 1QFY2017 Result Update
Profit & Loss statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Gross sales
6,285
7,208
8,658
9,660
11,336
13,396
Less: Excise duty
129
148
161
190
210
248
Net sales
6,155
7,060
8,497
9,469
11,126
13,148
Other operating income
203
164
154
368
368
368
Total operating income
6,358
7,224
8,651
9,838
11,494
13,517
% chg
20.8
13.6
19.8
13.7
16.8
17.6
Total expenditure
5,232
6,024
6,896
7,457
8,673
10,250
Net raw materials
2,320
2,714
3,197
3,277
4,005
4,733
Other mfg costs
387
443
534
595
699
826
Personnel
903
1,071
1,209
1,334
1,633
1,929
Other
1,622
1,796
2,107
2,252
2,336
2,761
EBITDA
923
1,036
1,601
2,012
2,453
2,899
% chg
1.4
12.3
54.6
25.6
21.9
18.2
(% of Net Sales)
15.0
14.7
18.8
21.2
22.0
22.0
Dep. & amortisation
183
201
287
302
393
439
EBIT
740
835
1,314
1,710
2,059
2,460
% chg
(1.7)
12.8
57.4
30.1
20.4
19.4
(% of Net Sales)
12.0
11.8
15.5
18.1
18.5
18.7
Interest & other charges
169
90
68
49
84
84
Other income
37
51
55
94
94
94
(% of PBT)
5
5
4
4
4
3
Recurring PBT
811
959
1,456
2,124
2,437
2,838
% chg
2.1
18.3
51.8
45.9
14.8
16.4
Extraordinary exp./(Inc.)
-
17
10
2
-
-
PBT (reported)
811
942
1,445
2,124
2,437
2,838
Tax
119.5
106.0
259.4
571.1
655.6
763.3
(% of PBT)
14.7
11.3
17.9
26.9
26.9
26.9
PAT (reported)
692
836
1,186
1,553
1,782
2,074
Less: Minority int. (MI)
36.4
32.6
35.5
30.0
30.0
30.0
PAT after MI (reported)
655
804
1,151
1,523
1,752
2,044
ADJ. PAT
655
819
1,159
1,524
1,752
2,044
% chg
0.8
25.0
41.5
31.5
14.9
16.7
(% of Net Sales)
10.6
11.4
13.5
16.1
15.7
15.5
Adj.Basic EPS (`)
6.4
8.0
11.3
14.9
17.1
20.0
Adj. Fully Diluted EPS (`)
6.4
8.0
11.3
14.9
17.1
20.0
% chg
0.8
25.0
41.5
31.5
14.9
16.7
August 16, 2016
7
Cadila Healthcare | 1QFY2017 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
SOURCES OF FUNDS
Equity share capital
102
102
102
102
102
102
Reserves & Surplus
2,938
3,337
4,149
5,250
6,714
8,471
Shareholders funds
3,040
3,439
4,252
5,352
6,816
8,574
Minority interest
119
144
169
135
165
195
Total loans
2,681
2,265
2,334
2,107
2,107
2,107
Other Long Term Liabilities
47
55
43
61
45
46
Long Term Provisions
64
76
110
77
78
79
Deferred tax liability
100
96
59
88
121
122
Total liabilities
6,053
6,075
6,966
7,820
9,209
10,998
APPLICATION OF FUNDS
Gross block
4,104
3,756
4,353
5,296
5,946
6,596
Less: Acc. depreciation
1,358
1,540
1,827
2,130
2,523
2,962
Net block
2,746
2,214
2,526
3,166
3,423
3,634
Capital Work-in-Progress
248
892
892
892
892
892
Goodwill
862
908
733
733
733
733
Investments
21
87
154
266
266
266
Long Term Loans and Adv.
411
495
637
756
663
779
Current assets
3,191
3,391
4,105
4,205
6,245
8,254
Cash
582
549
670
695
1,967
3,259
Loans & advances
279
341
334
335
336
337
Other
2,330
2,501
3,102
3,174
3,942
4,658
Current liabilities
1,426
1,912
2,081
2,196
3,012
3,560
Net Current assets
1,765
1,480
2,024
2,008
3,233
4,694
Mis. Exp. not written off
-
-
-
(1)
-
-
Total assets
6,053
6,075
6,966
7,820
9,209
10,998
August 16, 2016
8
Cadila Healthcare | 1QFY2017 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E
Profit before tax
811
942
1,445
2,124
2,437
2,838
Depreciation
183
201
287
302
393
439
(Inc)/Dec in Working Cap.
(223)
168
(565)
(78)
141
(286)
Less: Other income
37
51
55
94
94
94
Direct taxes paid
119
106
259
571
656
763
Cash Flow from
614
1,154
853
1,683
2,222
2,133
Operations
(Inc.)/Dec.in Fixed Assets
(860)
(296)
(597)
(943)
(650)
(650)
(Inc.)/Dec. in Investments
3
(65)
(68)
(112)
-
-
Other income
37
51
55
94
94
94
Cash Flow from Investing
(820)
(310)
(609)
(960)
(556)
(556)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
382
(397)
91
(242)
(16)
2
Dividend Paid (Incl. Tax)
(175)
(216)
(287)
(287)
(287)
(287)
Others
115
(264)
74
(168)
(91)
0
Cash Flow from Financing
322
(877)
(122)
(697)
(394)
(285)
Inc./(Dec.) in Cash
116
(33)
121
25
1,272
1,292
Opening Cash balances
467
582
549
670
695
1,967
Closing Cash balances
582
549
670
695
1,967
3,259
August 16, 2016
9
Cadila Healthcare | 1QFY2017 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
58.1
46.5
32.9
25.0
21.7
18.6
P/CEPS
45.4
37.3
26.3
20.8
17.7
15.3
P/BV
12.5
11.1
9.0
7.1
5.6
4.4
Dividend yield (%)
2.0
2.0
2.0
2.0
2.0
2.0
EV/Sales
1.5
1.3
4.6
4.1
3.4
2.8
EV/EBITDA
10.2
8.6
24.5
19.3
15.3
12.5
EV / Total Assets
1.6
1.5
5.6
5.0
4.1
3.3
Per Share Data (`)
EPS (Basic)
6.4
8.0
11.3
14.9
17.1
20.0
EPS (fully diluted)
6.4
8.0
11.3
14.9
17.1
20.0
Cash EPS
8.2
10.0
14.2
17.9
21.0
24.3
DPS
7.5
7.5
7.5
7.5
7.5
7.5
Book Value
29.7
33.6
41.5
52.3
66.6
83.8
Dupont Analysis
EBIT margin
12.0
11.8
15.5
18.1
18.5
18.7
Tax retention ratio
85.3
88.7
82.1
73.1
73.1
73.1
Asset turnover (x)
1.2
1.3
1.5
1.5
1.6
1.8
ROIC (Post-tax)
12.8
13.8
18.6
19.4
21.7
24.7
Cost of Debt (Post Tax)
5.8
3.2
2.4
1.6
2.9
2.9
Leverage (x)
0.7
0.6
0.4
0.3
0.1
0.0
Operating ROE
17.7
20.1
25.8
25.2
24.3
24.7
Returns (%)
ROCE (Pre-tax)
13.2
13.8
20.2
23.1
24.2
24.3
Angel ROIC (Pre-tax)
19.5
20.6
31.3
33.6
37.0
41.9
ROE
23.3
25.3
30.1
31.7
28.8
26.6
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
1.8
2.1
2.0
2.0
2.2
Inventory / Sales (days)
66
69
61
56
71
80
Receivables (days)
54
57
57
45
58
65
Payables (days)
42
55
46
45
53
53
WC (ex-cash) (days)
66
53
48
49
41
36
Solvency ratios (x)
Net debt to equity
0.7
0.5
0.4
0.3
0.0
(0.1)
Net debt to EBITDA
2.3
1.7
1.0
0.7
0.1
(0.4)
Interest Coverage (EBIT / Int.)
4.4
9.3
19.4
35.2
24.4
29.2
August 16, 2016
10
Cadila Healthcare | 1QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Cadila Healthcare
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 16, 2016
11