Buy Cadila Healthcare, target Rs 489: Anand Rathi

Anand Rathi has a buy call on Cadila Healthcare with a target price of Rs 489.

The current market price of Cadila Healthcare is Rs 367.10.

Time period given by the analyst is one year when Cadila Healthcare price can reach the defined target.


Investment rationale by Anand Rathi:
We believe a pick-up in Cadila’s US approvals, key launches and steady domestic formulations would help maintain its margins and earnings ahead. We upgrade our recommendation to a Buy, with a revised target price of Rs 489.

Expect steady domestic formulations: Cadila is one of the top three in gynaecology, respiratory, pain management, CVS and dermatology. 16 of its brands are among the top-300. Its current field force is about 6,100. In the domestic market, it has launched seven biosimilars and nine vaccines so far. It expects 40-50 launches annually and is focusing on vaccines and biologics, which would be future growth drivers. We expect a 13 per cent revenue CAGR over FY18-20.

Momentum in the US business to continue: Cadila has a strong ANDA pipeline in the US, with 144 filings awaiting approval, of which 60+ are Para IV. It launched 20 products in the year, including gLialda and gTamiflu and received 77 approvals in FY18, bringing cumulative filings/approvals to 330/186. During Q2 FY18, it launched gLialda, with 180-day exclusivity, whereas Teva launched it in Q4 FY18. We believe margin erosion in gLialda would be alleviated by other high-margin key launches such as gAsacol HD (its own) and gToprol. Given the company’s strong focus on its specialty pipeline, we expect US sales to clock a 13 per cent CAGR over FY17-20.

Change in estimates: We trim our FY19e and FY20e estimates, on account of a delay in the launch of transdermals; revenue by about 2 per cent each year, EBITDA by 7.3 per cent and 1.7 per cent and PAT by 9.7 per cent and 2 per cent respectively.

Valuation: We expect 11 per cent and 17 per cent CAGRs over FY18-20 in revenue and earnings respectively. With the recent fall in the price of the stock, we upgrade our recommendation from a Hold to a Buy, with a revised price target of Rs 489 (earlier Rs 500), based on 21x FY20e EPS.

Risks: Delay in product approvals, regulatory issues on any facility.