Cadila's renewed focus on India biz, Covid-19 opportunities lend confidence

The double-digit growth in Consumer Wellness business will ensure that the overall numbers keep ticking at a healthy pace.
Cadila Healthcare reported a subdued showing for the March 2020 quarter (Q4), partly on account of last year’s high base and the Covid-led supply disruptions.

Yet, investor confidence remains firm, reflected in its stock that continues to trade near 52-week highs. The key factor is the drug major’s strong outlook. 

Revenues in Q4 came in flat. While domestic sales — which contribute about a fourth to overall revenue — were also little changed, US sales (47 per cent of the top line) declined by 1.2 per cent year-on-year (YoY).

Sales in emerging markets and Latam were also weak, as supply disruptions impacted exports. Among the few that did well was the consumer wellness vertical (13 per cent of revenues), which grew 21 per cent and compensated for the decline in other segments. 
At the operating level, higher other expenses and employee costs weighed on margins, which fell 140 bps YoY to 21.1 per cent. Analysts attribute the rise in costs to the integration of the Heinz business, which was acquired last year. 

 

 
Profit before tax and exceptional items stood at Rs 575 crore. Net profit at Rs 433 crore, adjusted for impairment charges of a product and goodwill, was in line with estimates.

Cadila’s prospects in the domestic market remain firm, led by its strong product range and renewed business strategy. Analysts at Nomura say they like the initiatives taken by the management to revive domestic growth. 

In the US, too, the company has a strong pipeline, with close to 90 pending approvals for drug launches. However, there are concerns related to regulatory issues with the Moraiya plant, and expected competition in generics of Ascorol HD (colitis drug) from November once its exclusive sales period ends. 
Nevertheless, Cadila expects new launches — especially in injectables — to keep growth momentum steady. Meanwhile, Cadila will also benefit from opportunities posed by the outbreak, says an analyst at a domestic brokerage. 

It is already benefitting from Hydroxychloroquine (HCQ) sales, given it commands 40 per cent market share in the US, and also supplies to Indian government agencies. Cadila is also launching the anti-viral Remdesivir injectables, and working on a Covid-19 vaccine for which trials are underway. 

The double-digit growth rate in consumer wellness will ensure that overall numbers keep ticking at a healthy pace. 

Factoring in the above, analysts at ICICI Securities expect US revenues to grow 9.5 per cent annually over FY20-22. Analysts at Motilal Securities expect earnings to be back on the growth path — rising 16 per cent annually during FY20-22 — led by a gradual recovery in US sales and improving growth in domestic formulations.



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