Multiple growth levers make Cadila Healthcare attractive on the Street

Analysts feel that the street is not assigning much value for wellness business in Cadila Healthcare's overall valuations
Shares of Cadila Healthcare, which had seen a lacklustre trend for almost a year before the revival a fortnight back, have surged more than 28 per cent in two days.

 
The stock scaled its 52-week high of Rs 366.55 in intra-day trade on Wednesday, before closing at Rs 350. Street sentiment has improved of late, given that the company is expected to benefit from hydroxychloroquine (HCQ) supplies to the US.

A company spokesperson said monthly HCQ production had already been ramped up from 3 tonnes to 20-30 tonnes (more than 100 million tablets) to meet requirements. In addition, Cadila will scale it up further to 40-50 tonnes in the coming months, if the need arises.

Besides the improving US outlook, the company’s domestic prospects remain strong too.

 
The same is growing at a pace of about 10 per cent, and complements Cadila, which receives about 40 per cent of its revenues from India.

 

 
Analysts at Nirmal Bang Institutional Equities say the firm’s performance in the March quarter should be aided by growth in domestic business, and the seasonally strong wellness business.

Though the growth in its wellness business may be lower than normal given the present scenario, its prospects remain strong.

The consumer wellness business, which contributes 13 per cent to revenues and is housed under a separately listed company — Zydus Wellness —is expected to see traction from strong brands such as Sugar Free, Nutralite, and Everyuth, along with Complan, Glucon-D, Nycil. 

Analysts expect the wellness segment to deliver double-digit revenue growth, with key brands (like Complan) showing signs of revival.

 With liquidity limited in the Zydus Wellness (Cadila holds 63.5 per cent stake) counter, CLSA says Cadila is the recommended way for institutional investors to play the improving consumer business, even as gains from steady growth of its core pharma segment will continue.

Analysts feel the Street is not bullish on the wellness business in Cadila’s overall valuations. Assigning a 20 per cent holding company discount to its wellness business, CLSA had maintained positive outlook for the stock, which is trading at 22x its FY21 estimated earnings.


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