Zydus Lifesciences Ltd. share price target

Cadila Healthcare Limited (Cadila) reported 22.2% y-o-y growth in total operating revenue to Rs. 3,496.3 crore (2% above estimate). Operating profit (adjusted for one-time cost of Rs. 70 related to acquisition) reported 14.8% y-o-y growth to Rs. 702 crore (6.5% above estimate); OPM declined by 130 BPS y-o-y to 20.1% (100 BPS above our estimate of 19.1%). Adjusted profit grew by 14.5% to Rs. 384.8 crore (11.9 % above estimates). Strong sales growth was mainly due to consumer wellness business in India (acquisition led). India human formulation reported 6%...

Cadilas revenues increased by 20.8 percent on a YoY basis to Rs 34.9 bn (our estimate of Rs 37.6 bn) during the quarter.

The US (48% of revenues) has grown at a CAGR of ~17% in FY15-19 backed by aggressive filings and product launches. Launches of authorised generics also contributed to overall growth. The US pipeline (cumulative) consists of 330 filed ANDAs, 144 pending final approvals. But resurfacing of cGMP issues at Moraiya (WL resolved in February 2017) and an eminent slowdown in the base are main near term headwinds. We expect US sales growth to remain muted in FY19-21E mainly due to high base and absence of meaningful launches in the near term. India to witness restructuring; focus on profitable SKUs...

We upgraded CDH recently as we believe that the impact of OAI on its key formulations facility at Moraiya, Gujrat is already priced-in. The sharp ~30% FYTD fall in the price makes it one of the cheapest among the large-cap pharma stocks at 15.7x onFY21E EPS. With ~100 pending approvals and 2/3rd of them being filed from Ex-Moraiya units, we believe US$ 800mn US revenues and Rs 14.6 EPS (ex-Asacol HD) are achievable. With the ability to generate Rs 8-10bn FCFs annually, net debt position remains comfortable at ~Rs 70bn (0.7x FY19). We maintain BUY on CDH despite a miss on our estimates due to certain one-time costs. We have cut our FY21 EPS by 6% to accommodate higher interest cost. Our TP is revised to Rs 265 (18x FY21E EPS).

We downgraded CDH recently after the key formulations facility at Moraiya, Gujarat, received several critical observations related to contamination post USFDA's inspection. Since this facility contributes 40-45% to US revenues (in our estimates) and has ~30% of the pending US filings, we believe a warning letter (WL) or import alert would be detrimental for CDH (~40% downside). The US remains CDH's key performer as India and other segments have been disappointing consistently. Any slowdown in the US could severely hurt earnings, especially since gLialda, gTamiflu and gAsacol HD contribute 29% to US revenues (in FY19). In case of any adversities, the elevated debt (0.7x FY19E Net D/E) could prove to be fatal for earnings. We maintain NEU on CDH following a miss on our estimates. We have downsized our estimates to adjust for a weaker outlook on profitability over FY20-21E. Revised TP of Rs 285 (18x FY21E EPS) provides a limited upside.

The US (48% of revenues) has grown at a CAGR of ~17% in FY15-18 backed by aggressive filings and product launches. Launches of authorised generics also contributed to overall growth. The US pipeline (cumulative) consists of 330 filed ANDAs, 144 pending final approvals. The USFDA cleared Moraiya in February 2017. The new Ahmedabad SEZ and Baddi facilities have also started getting approvals. We expect US sales to grow just 3% to | 6643...

Margins decline due to lower domestic revenues and price impact on key products: Cadila's revenues increased by 15.3% on a YoY basis to Rs 37.3 bn (our estimate of Rs 38.1 bn) during the quarter.

Healthcare (Cadila) reported 14.8% growth in total operating revenue to Rs. 3,732.8 crore (above estimate due to consolidation of the acquired business of Heinz India Pvt. Ltd. for two months). Operating profit declined by 8% to Rs. 800.4 crore (5% below estimate) and OPM declined by 533.8 BPS to 21.4% (estimated 23.2%). Adjusted profit declined by 19.5% to Rs. 479.2 crore (8.5% below...

Gross margin stood at 62.9% and contracted 380bp YoY on high base of past year. EBITDA margin at 21.4%, contracted 540bp YoY, largely due to change in product mix and higher other expenses as % of sales (+130bp YoY). Absolute EBITDA at INR8b (our est. INR7.2b) was down 8% YoY. PAT came in at INR4.6b (our est. INR3.9b), down 24% YoY. In FY19, sales/EBITDA/PAT stood at INR131b/INR30b/INR18.7b up 10%/5%/4% YoY. Key Con-call highlights: (a) Despite high base of FY19 witnessed in US sales, CDH guided to maintain business to remain at similar levels (USD900m) in...

Robust US sales; high debt remains a concern Cadila Healthcare (Cadila) is India's leading vertically integrated pharmaceutical company. With its presence across the value chain, it manufactures finished dosage forms, active pharmaceutical...