Zydus Lifesciences Ltd. share price target

Maintain BUY with a revised TP of Rs 475 (22x Sep-20E EPS). Cadila (CDH) reported a muted quarter in 2QFY19 with revenue at Rs 29.6bn, down 8%YoY/ up 2%QoQ (in-line). Despite recovering 7%QoQ, the US business was down 20%YoY as it witnessed competition in gLialda. Margin at 23.2% was down 338bps YoY and up 94 bps QoQ (110bps miss) on account of higher forex loss at Rs 578mn (v/s Rs 135mn in 2QFY18) and increased R&D; spend of Rs 2.7bn, 9% of sales.

Q2FY19 results were stronger-than-expected on the operational front likely due to slower-than-expected price erosion in gLialda (ulcerative colitis). Revenues were in line with I-direct estimates Revenues de-grew 8.4% YoY to | 2961.2 crore (I-direct estimate: | 2986.6 crore) mainly due to high base of gLialda (ulcerative colitis), exclusivity in the US in Q2FY18 EBITDA margins contracted 323 bps to 23.2% (I-direct estimate: 20.5%), mainly on account of higher employee cost. EBITDA de-grew...

4 November 2018 CDHs revenue declined ~8% YoY to INR29.6b (our (-20% YoY) and flat growth in domestic formulation (DF) business. Gross margin expanded by ~50bp YoY/QoQ to 66.5%. EBITDA margin contracted by ~320bp (+100bp QoQ) to 23.2% due to higher employee expense (+340bp as % of sales) and other expenditure (+260bp). PAT declined ~17% YoY to INR4.2b (in-line). For 1HFY19, sales stood at INR56.1b (+6% YoY), EBITDA at INR13.3b (+17% YoY) and PAT at INR8.8b (+37% YoY). (1) CDH launched g-Asacol HD from its in-house manufacturing facility, which drove some improvement in margin. (2) CDH launched authorized generic version (AG) of g-Androgel in October 2018. (3) CDH has been able to maintain g-Lialda sales as competitor was not able to gain market share.

Revenue fell by 12.18% to Rs. 2768.7 Cr in Q1FY19 when compared to the previous quarter. Cadila Healthcare Ltd Q1FY19 results Comment

With a revised TP of 495 (24x on FY20E EPS), we maintain BUY. Cadila (CDH) continues to be at pace with double-digit YoY growth which started in 2QFY18. In 1QFY19, CDH reported revenue at Rs 28.9bn showing a growth of 32%YoY. EBITDA at Rs 6.4bn and PAT at Rs 4.6bn were up 133% and 233% YoY respectively. EBITDA margin came in at 22.3%, improving ~1000bpsYoY. This growth was primarily driven by the US and India businesses which were up 27% and 40% YoY respectively. Other major segments including LATAM and ROW markets and consumer wellness, animal health, and API businesses also saw double digit growth.

Cadila's (CDH) Q1FY19 results were mixed, sales were below by 3.4% while APAT was 9.8% above our expectations. We believe the miss at the margins were purely due to the erosion at gLialda and less off-take of Tamiflu. Sales grew by 29.6% YoY backed by strong growth in US formulations, India and LATAM regions. EBITDA margins were at 18.8% vs our estimates of 22% due to the sales mix. We expect domestic growth to be ahead of industry at 14-15%, while continuous launches in the US business to support growth. CDH plans to acquire 51% stake in Dehradunbased Windlas Healthcare Private Limited (WHPL) which will help ramp up the operations and increase our...

ff Acquisition: CDH has acquired 51% stake in Dehradun-based Windlas Healthcare, which gives access to a USFDA-approved facility (oral solid; plain vanilla and niche products). CDH expects this facility to help in commercialisation of 20-30 products over next 2-3 years,...

Revenues grew 29.8% YoY to | 2893.7 crore (I-direct estimate: | 3221.9 crore) due to 40.1% YoY growth in domestic formulations to | 893 crore (I-direct estimate: | 905 crore) and 27.5% growth in US revenues to | 1230 crore (I-direct estimate: | 1594.9 crore) EBITDA margins improved 985 bps to 22.3% (I-direct estimate: 21.5%), on account of gLialda exclusivity and base effect of GST...

Profits aided by Operating income and Other Income: Cadila's revenues increased by 29.5% on a YoY basis to Rs 28.9 bn (our estimate of Rs 29.8 bn) during the quarter. Key outperformer was US. Operatingmargins increased to 22.3% (lower than our estimates of 24.0%) compared to12.8% in Q1FY18 due to higher revenues, operating income and lower R & D.

Margins Outperform: Cadila's revenues increased by 29.3% on a YoY basis to Rs 32.5 bn (our estimate of Rs 32.0 bn) during the quarter. Key outperformer was US. Operating margins increased to 27.6% (higher than our estimates of 23.3%) compared to 18.9% in Q4FY17 due to higher revenue, better gross margin and lower R & D.