Cadila: Rebound in domestic formulations to add to US sales, drive earnings

The company is developing a pipeline of complex products and is investing to ramp up its US generic injectables portfolio
Shares of Cadila Healthcare gained 5.6 per cent and scaled fresh 52-week high as the company launched its first metered dose inhaler (MDI) in India. While the launch strengthens Cadila’s respiratory portfolio, analysts say more triggers are falling into place to drive earnings.

In the US, Cadila is expected to gain from improvement in realisation for its product range led by drug shortages. Already, it has been gaining market share. “In one of its most integrated key products, mesalamine (Lialda generics) — used for treating ulcerative colitis, Cadila’s share has improved to 70 per cent from 55 per cent in January at the expense of Mylan,” say analysts at PhillipCapital, referring to the US monthly data. Teva and Sun Pharma’s market share remained at less than 5 per cent. This should help Cadila surprise on the margins front, feel analysts.

In Q1, US sales grew 19 per cent year-on-year (YoY) and contributed 45 per cent to top line. This also cushioned overall revenue in Q1, as domestic sales (40 per cent of top line) declined 11 per cent impacted by lockdowns. A strong product pipeline with over 20 new launches expected during FY21 should drive US sales. Looking at diversified plays with strong research and development (R&D) pipeline, Cadila is amongst Axis Capital’s picks.

The company is developing a pipeline of complex products and is investing to ramp up its US generic injectables portfolio. Cadila already had guided analysts for injectable sales rising to $150-200 million by FY24, from $15 million in FY20. Injectables are high-margin and difficult to manufacture products, and see less competition. The company is also working on resolution of USFDA issues relating to its Moraiya plant and is simultaneously taking site transfers. It recently relaunched one injectable from Liva facility near Nasik. Besides, analysts at JM Financial expect supply disruption related opportunities for Cadila to provide key upside triggers.

In India, after disruption during June quarter, growth is expected to pick up fast. Cadila also has a Covid treatment portfolio, being a large producer of key emergency treatment HCQS and had launched remdesivir, which should support sales. Its Covid-19 vaccine is in Phase-II trial. Any success with this can lead to a multifold earnings re-rating, feel analysts.

Motilal Oswal Securities has already raised its earnings estimates for FY21 and FY22 by 9-10 per cent to reflect margin improvement and pick-up in domestic formulation sales. It expect a 21 per cent annual growth in earnings over two years. The impressive debt reduction is also keeping sentiment elevated. Analysts expect net debt to reduce by Rs 1,000 crore in FY21, from Rs 5,200 crore in FY20.

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