Cadila Healthcare recovers on India, emerging market sales forecast

The Cadila Healthcare stock has rebounded 12 per cent after falling to its five-year low last month.

The uptick, which came on the back of brokerage upgrades, was largely on expectations of earnings recovery. Analysts believe that investments in India and emerging markets (EMs), as well as new products, should help revenue growth with most concerns already priced in.

Analysts at CLSA expect results from the company’s efforts to start bearing fruit from FY21. They also find valuations (price-to-earnings ratio) attractive. HDFC Securities, too, believes the stock is one of the cheapest large-cap pharma names, following the sharp fall in prices.

In the US, the company has been impacted by price erosion, like its peers. Though it has a strong pipeline for new launches, regulatory worries — especially for its Moraiya (Gujarat) plant — may derail its plans. Analysts say that with more than 100 pending approvals and two-thirds of them being filed from non-Moraiya units, US revenue growth may not be affected much.

Further the company is also investing in developing novel drugs. These target areas such as pain, cancer, inflammation, infection, and cardio-metabolic ailments.

Cadila has been restructuring its portfolio in the domestic market, though the same has not yielded major results so far, given the single-digit growth. While the ramp-up is expected to be gradual, greater focus on key brands and improved productivity of the field force will drive profitability, believe analysts.  

In addition to the restructuring, the acquisition of Heinz India by Zydus Wellness (acquiring brands such as Complan, Nycil, and Glucon-D) is expected to strengthen its consumer health business in India. 

Investments in vaccines (19 products) and biosimilars (more than 20 products) for India and EMs are also growth drivers. The vaccines and biologics portfolio is expected to generate $500 million in revenue by FY23 ($50 million in FY19).

CLSA says that Cadila will no longer depend on just the US market for growth, even though the US pipeline (over 100 ANDAs or abbreviated new drug applications) is promising. 

However, any progress on innovations — which are currently in the early stages — is expected to lead to a rerating for the stock.

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