Recommendations » India

Cadila Healthcare 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Cadila Healthcare (Cadila) reported lower-than-expected numbers for 3QFY2012, except on the sales front. The company’s sales for the quarter were mostly in-line at ~Rs.1,352cr. However, higher R&D expense during the quarter resulted in depression in the operating margin, which came in at 17.1%. This coupled with forex losses during the quarter resulted in higher dip in net profit during the quarter. The stock is trading at 20.1x FY2012E and 15.6x FY2013E earnings. We recommend Buy on the stock.

Lower-than-expected set of numbers: For 3QFY2012, Cadila reported net sales of Rs.1,352cr, up 19.2% yoy and higher than our estimate of Rs.1,278cr, driven by exports. On the domestic front, net sales grew by 8.4% yoy to Rs.606cr. The company’s gross margin declined by 66.6% during the quarter. The company’s OPM also declined to 17.1%, majorly due to higher employee expenses and R&D expenses, which grew by 35.1% and 108.3% yoy, respectively. Net profit for the quarter declined by 7.8% yoy to Rs.149cr (Rs.162cr). Adjusted for forex loss of Rs.34.3cr, the company posted net profit growth of almost 9.0% yoy, still lower than our estimate of 19.1% yoy growth.

Outlook and valuation: We expect Cadila’s net sales to post a 17.8% CAGR to Rs.6,196cr and EPS to report an 11.7% CAGR to Rs.43.3 over FY2011–13E. We recommend Buy on the stock with a revised target price of Rs.866.