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Cadila Healthcare - Buy, Hold or Sell?

6/27/2014

1 Comment

 
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Cadila Healthcare is an Indian pharmaceutical company headquartered in Ahnedabad, Gujarat. Currently, it is the fifth largest pharma company in India, with a significant presence in generic drugs. It was founded in 1952.

The global pharmaceutical market is estimated to have expanded at the rate of 3-4% during 2012 and reached the size of over US$ 980 bn. The growth in 2012 was lower compared to the earlier years, especially in developed markets.

The Indian pharmaceutical market, which had been continuously growing at around 15% for the last few years slowed down, registering a growth of 11.9% during the financial year 2012-13, and crossed Rs. 70,000 crores. The key reasons for this slow growth was the strong base of the previous year, lower discretionary spending and defering of treatments. 

Chronic segments registered a higher growth as compared to the acute segments. Diabetics, urology, anti-malarial and CVS therapeutic areas registered a higher growth during the year (Source: AIOCD AWACS report).

Cadila Healthcare maintained leadership positions in the Cardiology, Gynecology, Gastro Intestinal and Respiratory therapy segments (represented markets) and outpaced the overall market growth of 12%. A business summary of 2013:

- launched 13 new products in the French generic market, of which, 5 were Day-1 launches. Overall, European business posted sales of Rs.3,697 Mio., up by 24%.
- launched more than 30 new products in the key markets of Asia Pacific, Africa and Middle East during the year. Overall, Emerging Markets business posted sales of Rs.3,134 Mio., up by 66%.
- launched 7 new products, including one controlled substance product from Nesher, in the US market. US business posted sales of Rs.15,068 Mio., up by 21 %.
- Overall, the Company’s formulations business in India posted sales of Rs.23,232 Mio. during the year, up by 23% from Rs.18,950 Mio. last year.
- Completed the construction of India’s largest state-of-the-art manufacturing facility for monoclonal antibodies during the year

17 of the Company’s brands are now featured amongst the top 300 pharmaceutical brands in India (Source: 
AIOCD AWACS Report, MAT March 2013). In 2013, they launched over 90 new products, including over 50 line extensions, of which, 21 were first-time launches in India.

Let's take a look at 5-year financials:
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The company is growing steadily, however margins and sales growth have come down over the years. This is probably a result of competition, which is intense in the generic field. Their main rivals are Dr Reddys Laboratories, Lupin, Cipla and Sun Pharmaceuticals.

VALUATION


I did a 3 stage DCF valuation with these assumptions:
- 20% profit growth for the next 5 years, after that 10% for 5 years
- terminal growth of 3%
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Even if I take optimistic assumptions, which are a 8% discount rate and 20% growth, the stock doesn't offer more than 20% upside from a valuation standpoint. I don't go into situations like this, because my stop losses are usually around 10-20%, so the risk/reward ratio is not that favorable, and there are better stocks available. However, the chart looks good as the stock is emerging from a 2 year consolidation pattern.
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1 Comment
Anil
6/28/2014 03:19:52 pm

Hi,
I am staying in India but interested to invest outside of India like US,UK and other market. Can you please guide us how to invest in other country's with less brokerage cost.

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