Cadila Healthcare’s stock has outperformed broader markets in the last one month and appreciated 14% to Rs 649.50 per share. The BSE Sensex declined 2.4% in the same period.
At the current market price, the stock trades at 19 times its estimated earnings for 2010. The analyst community is positive on the stock. The reasons aren’t far to seek.
Cadila’s investment phase is more or less over and it will be in the growth phase for the next three years. The company invested around Rs 900 crore between FY2007 and FY2009 for acquisitions in South Africa, Brazil, Japan, Spain and Hospira JV.
Rohita Sharma and Vihari Purushothaman and Chandrashekar Sridhar of Enam Securities feel these acquisitions would result in a 23% compounded annual growth rate (CAGR) in sales from FY2009-FY2012. “We expect 15% and 22% CAGR in sales and profit respectively from FY2009-2012 despite profit contribution from Nycomed JV (pantoprazole, about 65% net profit margins) likely to come down to 5% in FY2012 from 19% in FY2009,” the Enam analysts wrote in a note to clients on December 18.
This growth is expected to be driven by continued growth momentum in the US, improving profitability across other geographies and ramp-up in sales of the Hospira JV.
For the quarter ended September, Cadila’s numbers were better than expectations. Total operating revenues increased 23.7% year on year, driven by a 37.5% increase in revenues from international business, which contributed 47% of total revenues in the September quarter. Operating profit margins declined 130 basis points (100 basis points make one percentage point) to 18.9%, primarily due to lower contribution of the high-margin Nycomed. Reported net profit increased 39%.
The company expects domestic business to register strong growth in the second half of this fiscal. Cadila raised its guidance for revenues from the US to about $130 million for FY2010 from $120 million after the half year-ended September. Margins are also expected to look better driven by higher contribution from formulation business and incremental revenue from domestic branded segment.
Investors could consider the stock on declines.
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