Cadila Healthcare: Brokerages Divided On Q4 Performance, Outlook

Analysts have mixed views on Cadila Healthcare Ltd. even as the Ahmedabad-based company reported growth in the fourth quarter and received emergency approval for Covid-19 drug.

Q4 Highlights

• Total sales grew 2.5% year-on-year to nearly Rs 3,850 crore, led by domestic formulation segment and emerging markets.

• India revenue, which makes up 47% of its total sales, grew 18% to around Rs 1,770 crore. Domestic business comprises of formulation, consumer wellness and animal health.

• U.S. revenue, contributing 40% of total sales, declined 14.3% year-on-year to around Rs 1,509 crore because of a weak flu season, price erosion in the base portfolio and lower off take of anti-inflammatory drug Asacol.

• Consolidated net profit of the drugmaker rose 73% to Rs 679 crore.

Cadila Healthcare managed to reduce its net debt by around Rs 3,200 crore to Rs 3,020 crore as of March. Around Rs 2,200 crore of the reduction came was from internal accruals and the rest from funds raised via preferential issue and qualified institutional placement.

The company's Covid-19 drug Virafin recently got emergency use approval.

Shares of Cadila Healthcare fell as much as 2.29% to Rs 612.5 apiece before paring losses. Of the 34 analysts tracking the stock, 19 have a ‘buy’ rating, five suggest a ‘hold’ and 10 recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies downside of 6.8%.

Here's what analysts had to say about Cadila's Q4 performance:

Jefferies

• Downgraded Cadila from 'buy' rating to 'hold', but raised price target to Rs 586, implying a downside of 6% from current levels.

• Q4 revenue and Ebitda in line with expectations but geographic performance wasn't. India and emerging markets did well but U.S. sales declined.

• Cadila's Zycov-D Covid vaccine will give one-time boost to the company, while other products to sustain robust domestic performance. But the brokerage is not factoring in sales of Zycov-D as the company has not come out with the pricing details.

• Management believes Virafin could be a significant addition to Covid portfolio.

Prabhudas Lilladher

• Downgraded the stock to 'accumulate' from 'buy'; increased target price to Rs 696, a potential upside of 12%.

• Q4 sales were in line with estimates, while earnings forecasts with contribution of higher-margin products (Covid-19 drugs) in India. That more than offset the shortfall in U.S. generics.

• Weak flu season, homebound population in lockdown and price erosion in older products were key reasons for 5% sequential decline in U.S. sales

• While the brokerage remains positive on near-term opportunity in Covid drugs and vaccines, stock price has already moved up steeply by 36% since February.

Motilal Oswal

• Maintained 'buy' on Cadila, raising target price to Rs 740, implying an upside of 19%.

• Healthy traction in domestic formulation and consumer wellness segments has offset the impact of weak U.S. sales and improved Ebitda margin.

• It is well placed to benefit from preventive as well as treatment drugs for Covid-19, in addition to improving performance in its core domestic formulation portfolio. The innovative pipeline is also progressing well in clinical studies.

• Positive on Cadila on account of superior execution in the domestic formulation segment, favourable demand for Covid-19 products, innovative as well as a complex generic pipeline and reducing financial leverage.

• Vaccine-related upside is the potential trigger in the near term and is yet to be captured in earnings.

CLSA

• Downgraded the stock from ‘buy’ to ‘outperform’, raises target price to Rs 670, an upside potential of about 7%.

• Q4 Ebitda stood 10% ahead of estimate on strong growth in India and better margins. A tax write-back drove the beat on net profit.

• Target price raised factoring in higher contribution from Covid products and Revlimid opportunity.

• Long-term growth story intact given R&D pipeline of novel research, biologics in India and emerging markets, vaccines and basket of U.S. generic products including complex products.

Dolat Analysis

• Maintained 'buy' rating, raising target price to Rs 700 apiece, an upside potential of about 12%.

• Cadila provides strong growth visibility led by progress in its key markets – U.S. (transition towards innovation, injectables) and domestic business (enhanced focus on specialty and beneficiary of Covid)

• Covid portfolio could surprise positively. Virafin priced at Rs 11,995 per dose could potentially add Rs 100-150 crore to the earnings, while ZyCOV-D to add incremental sales of Rs 4,000 crore in FY23.

ICICI Securities

• Maintained 'sell', raising target price to Rs 512, implying a downside of nearly 18%.

• U.S. sales were weak while Ebitda margin was supported by reduced expenditure towards R&D.

• The company has strengthened the balance sheet by substantial net debt reduction to around Rs 3,500 crore, aided by internal accruals and equity raise of Rs 1,000 crore in subsidiary Zydus Wellness.

• Cadila’s potential Covid-19 vaccine ZyCoV-D remains the near-term trigger, if approved; but current stock price already captures the potential upside

• Debt will reduce further after completing the divestment of animal health business.

JM Financial

• Maintained 'buy' on the stock; increased target price to Rs 660, an implied upside of 6%.

• Q4 results were operationally in line and were driven by tight cost control & lower R&D expenses even as U.S. sales were muted

• Domestic formulations and consumer wellness businesses post robust growth.

• Cadila continues to expand its strong Covid portfolio with Virafin receiving emergency use approval and ZyCoV MV (second Covid vaccine candidate) and Covimabs (antibody cocktail) at the pre-clinical stage.