Prabhudas Lilladher has given Accumulate recommendation for Cadila Healthcare with a target price of Rs. 696 in its research report issued on May 28, 2021
Prabhudas Lilladher’s research report on Cadila Healthcare
We revise upgrade our earnings estimate by 22% in FY23E while marginally decreased by 2.4% in FY22E as we increase estimates of Consumer healthcare, India formulations (with 40+ launches) and EU sales while removing animal healthcare sales from 2HFY22 due to sale of business. The 4QFY21 sales were in-line, while earnings beat our estimates with contribution of higher-margin products (Covid-19 drugs) in India, which more than offset the shortfall in US generics. The weak flu season, homebound population in lockdown and price erosion in older products were key reasons for 5% QoQ decline in US sales. There were however better contributions from India formulations, consumer wellness products and lower marketing overheads helped in maintaining adj. EBITDA margin at 20.4%. In addition, 70% reduction in interest cost and higher other operating income helped in normalized PBT growth of 5%. While we remain positive on CDH’s strong visibility of near term opportunity in Covid-19 led drugs and vaccines, stock price has already moved up steeply by 36% since Feb-2021.
We believe the run-up discounted initial booster benefits of vaccine launch in April FY22E (which is delayed now to end-Jun CY21) and strong sales of Remdesivir (since Mar-CY21) on virulent arrival of second wave of Covid-19 in India. With increase in earnings estimates and assigned PE multiple to 22x (earlier 20x) on the back of 1) steep debt reduction and 2) visibility on near term launches, we increase our TP to Rs696 (from Rs517). Our recommendation however downgraded to ‘Accumulate’ (from ‘Buy’) as it offers 11% upside to current valuation.