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    Add Cadila Healthcare, target price Rs 400: ICICI Securities

    Synopsis

    Valuations look reasonable at 20.0 times FY21E and 18.1 times FY22E earnings and EV/EBITDA multiples of 13.1 times FY21E and 12.0 times FY22E.

    Stocks


    ICICI Securities has given an add rating to Cadila Healthcare with a target price of Rs 400. The share price moved up by 1.26 per cent from its previous close of Rs 360.65. The stock’s last traded price is Rs 365.20.

    Cadila Healthcare’s reported Q4FY20 performance was marginally better than the brokerage estimates driven by higher US sales and better gross margin. However, India revenue was below its estimates impacted by Covid-19 related disruptions. Total revenue remained flat at Rs 37.3 billion, EBITDA margin (ex-forex) dropped 90bps to 20.5 per cent against brokerage estimate of 18.7 per cent and adjusted PAT declined 8.1 per cent to Rs 4.2 billion against brokerage estimate of Rs 3.7 billion). EBITDA margin beat of 180bps was driven by higher gross margin in US business and controlled personnel cost.

    Strong launch momentum -- more than 20 in FY21E -- and higher HCQS sales would help grow the generic business in the US. The brokerage believes revenue mix would continue to improve with increasing revenue from India including consumer business of consumer wellness segment.

    Investment Rationale

    I-Sec expects revenue/EBITDA/PAT CAGRs of 9.4/13.7/20.1 per cent respectively, over FY20-FY22E. The brokerage expects the earnings growth would be largely driven by higher US sales, improving gross margin and reduction in interest charge. It has raised revenue/EPS estimates by 0-1/0-6 per cent, respectively, to factor in higher sales in the US and reduction in interest cost.

    Q4FY20 Performance
    Cadila Healthcare-ICICISecJune232020


    According to the brokerage, the valuations look reasonable at 20.0 times FY21E and 18.1 times FY22E earnings and EV/EBITDA multiples of 13.1 times FY21E and 12.0 times FY22E. It has raised target P/E(x) to 20 times from 18 times earlier considering improving revenue mix and strong earnings CAGR of around 20 per cent. The rating has been upgraded to add from hold with a revised target price of Rs400/share based on 20 times FY22E EPS (earlier: Rs 340).

    Key downside risks: Delay in the launch of high-value products and regulatory hurdles.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 3752.10 crore, up 6.16 per cent from last quarter sales of Rs 3534.50 crore and up 3.66 per cent from last year's same quarter sales of Rs 3619.50 crore. The company reported net profit after tax of Rs 413.50 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 74.88 per cent stake in the company as of March 2020, while FIIs held 4.41 per cent, DIIs 13.04 per cent and public and others 7.67 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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