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1 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Recommendation
Buy at CMP and add on Dips
Add on dips to
Rs. 450 - 470
Targets
Rs. 555 - 620
Time Horizon
4 Quarters
Industry
Pharmaceuticals
CMP
Rs. 496
Company Background
Cadila Healthcare (CDH) is a well-diversified Pharma company with presence across more than 100 countries in
the world and among the few Indian players to have presence in Consumer and Animal health businesses. Cadila
ranks among the Top-5 companies in the Indian pharma market and the India branded business contributes more
than 30% of its sales. US contributes 35% of its revenues and is among the top-15 generic companies in the US
in terms of prescriptions. Acquisition has been a core to its strategy in recent times primarily aimed at
strengthening presence in these markets - Spain, France, Brazil, Nesher Pharma in US, etc. to its credit it also has
joint ventures with leading Global Pharma players like Abbott, Bayer, Hospira, Takeda, etc. Company has done
several acquisitions over the past 7 years, which also augurs well for the company.
Investment Rationale
Cadila is poised to leverage on the R&D investment made in the past few years in complex and niche speciality
areas, ranging from transdermals / derma / pain (for the US markets), biosimilars / vaccines initially for India and
EMs and later for other markets.
The warning letter issued in FY16 on Moraiya was the key overhang for the company. With the resolution of US
FDA issues, we believe the US business will remain the key growth driver, posting 25% CAGR over FY17-20E.
Cadila’s US growth pick up will be complemented by stabilisation in domestic formulations as also steady pick-up
in non-US exports.
Inorganic initiatives: In addition to organic initiatives, Company is also open to making acquisitions based on
opportunities coming its way primarily with an intention of setting up a specialty front‐end in the US and speed up
its specialty focus. Several inorganic specialty forays are currently ongoing. Inorganic growth strategies have been
integral to Cadila’s growth model as reflected in multiple transactions undertaken over the years, e.g., Nesher
Pharma, various brands in India, and Sentynl Therapeutics. With the recent acquisition of Sentynl Therapeutics,
Cadila has gained access to a specialty distribution network for the US$ 8bn US specialty pain market. We expect
this strategy to gain further momentum in coming years with special emphasis on building the speciality business.
Over the past few years, Cadila has gone through a challenging phase, following fewer product approvals for the
US market on account of an US FDA warning letter on its key facility, increased competition in key products like
HCQS and the recent domestic issues such as price control, ban on fixed dosage combinations and demonetisation. Kushal Rughani
HDFC Scrip Code CADHEA
BSE Code 532321
NSE Code CADILAHC
Bloomberg CDH:IN
CMP as on 03 Nov’17 496
Equity Capital (Rs cr) 102.4
Face Value (Rs) 1
Equity O/S (cr) 102.4
Market Cap (Rs Cr) 51050
Book Value (Rs) 84
Avg. 52 Week Vol 1232193
52 Week High (Rs) 558
52 Week Low (Rs) 330
Shareholding Pattern (%)
Promoters 74.8
Institutions 17.2
Non Institutions 08.0
PCG Risk
Rating* yellow
* Refer Rating explanation
2 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
However, despite these challenges, Cadila continued to invest in R&D (organic – building on the ANDA
pipeline; inorganic – building on the speciality pipeline, biosimilars and vaccines for India and EMs) and
expanded capacity (Baddi and SEZ – alternative sites as a risk mitigating strategy). Cadila has managed
to tide over this challenging phase and sustain investments without much material increase in leverage,
and return ratios continued to remain healthy over the period.
With the resolution of US FDA issues across most of its key facilities over the last few quarters, we believe
that Cadila is now well placed to build on the growth platform laid over the last few years. We expect
strong performance in the coming quarters driven by (i) turnaround in the US business and (ii)
improvement in margins from a better operational mix (larger share of high-margin US business). In
addition, recovery in the domestic business and stabilising EM currencies could also support overall growth.
Consequently, we expect 22% earnings CAGR over FY17-20E. Despite the recent run-up, the stock still
looks attractive at 19x FY20E EPS, supported by strong earnings growth (22% CAGR over FY17-20E) and
improving return ratios.
Scale up in US market sales – key trigger
Cadila’s growth strategy will be primarily driven by the scale-up in the US market. In the US, Cadila will
focus on accelerated ANDA launches with increasing proportion of complex drugs and building up the
speciality pipeline. Along with the US, Cadila is focusing on improving sales productivity in India as a key
near-term growth driver. Over the medium term, Cadila will seek to leverage its R&D capabilities to create
new growth engines in the form of biosimilars, vaccines and NCEs. These organic growth measures will be
supplemented by inorganic growth initiatives.
In the past three years, Cadila Healthcare’s operating metrics came for a beating owing to lack of approvals
in US (Warning letter on Moraiya plant) and weak performance of other key businesses. In the recent
quarters signs of a rebound have started to show led by growth in the US and India. We believe that the
company’s niche US pipeline (165+ ANDA pending approval) will lend impetus to its earnings as we expect
ANDA approvals to pick up. We expect operating leverage to aid margin expansion. With more productive
US pipeline awaiting approval, hope of a strong earnings growth for Cadila in the next few years continues
and will support premium valuations.
Complex generics: Transdermal: Cadila is targeting the limited competition transdermal market, having a
market size of ~US$ 6‐7bn and 4 main players — Mylan, Sandoz, Dr Reddy’s and Cadila. After working on
the portfolio for the past 5 years, it is expected to start contributing in FY18 with 2 approvals (Clonidine –
market size US$ 200mn and Estradiol ‐ market size US$ 100mn) and anticipates one of these to have
good potential.
Key Highlights
Cadila Healthcare is a well-diversified Pharma company with presence
across the world and among the few
Indian players to have presence in Consumer and Animal health businesses.
The warning letter issued in FY16 on Moraiya was the key overhang for the company. With the resolution of US FDA issues, we believe the US business will remain the key growth driver, posting 25% CAGR over FY17-20E. Cadila’s US growth pick up will
be complemented by stabilisation in domestic formulations as also steady pick-up in non-US exports. Cadila is poised to leverage on the R&D investment made in the past few
years in complex and niche speciality areas, ranging from transdermals /
derma / pain (for the US markets), biosimilars/vaccines initially for India and EMs and later for other markets.
We expect 22% earnings CAGR over FY17-20E. Despite the recent run-up, the stock still looks attractive at 19x FY20E EPS, supported by strong earnings growth and improving
return ratios.
3 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Cadila aspires to more than double its US base business (~USD550mn currently) over the next 3 years by launching ~100 new products
(~165 pending ANDAs). Key product launches include gAsacol HD, gPrevacid ODT and gToprol-XL. Transdermals portfolio is expected to
start contributing in FY18. Through a mix of organic and inorganic initiatives, the company also aims to build a specialty business tapping
into opportunities, both near (NDDS filings + small brand acquisitions in pain area) and long (own products in 3-4 therapeutic areas) term.
We believe that large Indian generics companies (annual revenues > US$1bn) will need to significantly re-orient their growth strategies
as the generics business base keeps increasing. Strategies that successfully drove growth over the past five years or so are unlikely to be
effective in driving growth over the next five years and beyond. Cadila has outlined its speciality programme, where it has identified its
key focus therapy areas.
As part of this strategy, in January 2017 Cadila acquired Sentynl Therapeutics, US, for ~US$ 170mn. Sentynl Therapeutics is a US-based
commercial stage speciality company that specialises in launching unique products and revitalizing marketed brands with focus on niche
products in pain and CNS. A key branded drug in Sentynl’s portfolio is Abstral, which is used for pain management in oncology. The
acquisition gave Cadila access to the speciality prescription market in the US, especially in pain management, which is US$ 8bn segment.
Cadila also got access to a speciality distribution network and a large prescriber base. Further, the company has some other drugs under
development which can further broaden the portfolio in coming years. In June 2011, Cadila had acquired Nesher for the US market to add
capabilities to manufacture controlled-release medications or DEA controlled substances. The Sentynl acquisition has a good strategic fit
with Nesher and enhances Cadila’s capabilities in controlled substance/pain management.
Some of the acquisitions done by Cadila in the past
Year Company Geography Segment Details
Jun-11 Nesher Pharma USA Controlled Substances Controlled release medications. It was acquired for US$ 60mn
Jul-11 Bermer Germany Animal Health Expands animal health business globally with access to markets like Europe, South America, Asia and Africa
Jan-16 Zoetis India Animal Health Strategic acquisition of select brands
Jun-16 Teva USA Transdermal
Strengthened US portfolio by acquiring two ANDAs from Teva (divested by Teva as a pre-condition for its acquisition of Allergan’s generic business)
Aug-16 Issar India Derma Acquired Melagin (skin pigment loss - derma product)
Dec-16 MSD India Men, Women, Health &
Cardiovascular
Acquired six brands Deca-Durabolin, Durabolin, Sustanon, Multiload, Sicastat and Axeten with cumulative sales of Rs840m in 2015. Deal includes the transfer of distribution and commercialisation rights/trademarks in India (including two brand rights for Nepal)
Jan-17 Sentynl
Therapeutics USA Speciality
Acquired for US$ 170mn (as per media reports). Entry into speciality prescription markets in the US. Forays into US$8bn pain market.
Source: Company, HDFC Sec
4 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
US Business – Finally set to deliver to potential
• Growth plummeted in FY12-13 when Cadila’s Moraiya facility was issued a warning letter.
• By FY13, the US FDA issues had been resolved and growth resumed at a good clip, visible in FY14-15.
• But the US FDA struck again in FY15, issuing a Form 483 (followed by a warning letter in FY16) for the Moraiya facility. Growth again
fell due to lack of new ANDA approvals and competition in key products, with FY17 the worst year.
• Notably, for the period FY15-FY17, Cadila benefited by supplies of certain products like HCQS, which contributed US$ 180-200mn over
the three-year period and the launch of Asacol HD in FY17, which contributed US$ 90mn. This helped to partially mitigate the earnings
challenges during this period.
Despite having one of the most interesting US ANDA pipelines among peers, Cadila’s US business growth had got impacted by multiple
plant compliance issues over the past few years. With the receipt of FDA clean-chit across all manufacturing facilities, however, the
potential of Cadila’s 309 ANDA pipeline (~165 products awaiting approval - largest among Indian peers) is now set to unfold. In addition
to the recent gLialda approval, we expect multiple niche launches like gPrevacid, gToprol XL, gAsacol HD (switch from AG) over the next
few quarters and in turn drive 15.5% CAGR in revenues over FY17-20E.
Moraiya unit – Key to Cadila’s US generics plans
The Moraiya facility is important to Cadila, as it generates almost 40-45% of total US revenues. In terms of the products awaiting approval,
Moraiya accounts for 70-75 products of the total 197 awaiting US FDA approval. More importantly, most of Cadila’s complex/high-value
ANDAs have been filed from Moraiya.
Over the years, the Moraiya unit has had a fairly chequered history with respect to meeting US FDA compliance norms. This, in turn, has
had a significant correlation with Cadila’s overall US growth trajectory. A case in point is Cadila’s inability to get approval for its niche
gAsacol HD ANDA (in FY16-17) as it was filed from Moraiya, which significantly impacted Cadila’s growth over this period.
gLialda – Cadila’s most meaningful ANDA approval so far
Cadila has received the much-awaited US FDA approval for gLialda (Mesalamine XR tablets 1.2g), becoming the first company to receive
approval for the product. This is a fairly complex drug given the challenges associated with the API as well as stabilisation of the formulation.
Cadila received the approval from the Moraiya facility, which has received EIR from the US FDA after issues faced by the company. The
approval comes within a month of Cadila winning its prolonged legal battle with Shire in the US. Cadila is the FTF and will therefore be
eligible for 180 days of exclusivity for the product. Earlier, Cadila had prevailed in litigation at both the District and the Appeals courts. We
expect the launch to happen sometime shortly.
5 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
gAsacol HD – Potential launch of own product in FY19
One of Cadila’s filings is Asacol HD (currently marketing Asacol AG in the US; expected to secure approval for its own ANDA), which is also
a Mesalamine-based delayed-release tablet.
The switch from AG to own generic by FY19 may provide a further boost to earnings due to significantly higher profitability. The other key
filings in the oral solids segment are Prevacid ODT (market size of US$ 240mn), Metoprolol XL (Toprol - market size - US$ 450mn) and
transdermal products (Duragesic, Exelon and Lidocaine), that are likely to receive approval from the US FDA in FY18E/FY19E.
Transdermals - Cadila is among the few Indian companies to have R&D as well as manufacturing capabilities in this niche delivery format.
Transdermals by nature require more investment than plain generics products as more studies are needed. Cadila has already made
significant investments in transdermals – it has already filed for seven products which are awaiting approval.
While Cadila has successfully demonstrated its ability to file >30 ANDAs annually on a regular basis, the company is aiming to enhance
the proportion of complex ANDAs going forward. Some of the newer areas of focus will include modified-release oral solids, transdermals,
topicals and nasal sprays.
R&D Expenses continues to surge
R&D Expenses (% of Revenues) FY13 FY14 FY15 FY16 FY17
Aurobindo 3.6 3.4 2.9 3.5 3.6
Biocon 8.2 5.3 8.4 11.4 10.4
Cadila 6 6.4 6.5 8.1 8
Cipla 4 4.6 5.6 5.4 6.6
Dr Reddys 6.6 9.4 11.8 11.5 13.5
Glenmark 7.7 9 10 10 10.4
Lupin 7.4 8.2 8.4 11.2 13.2
Natco 4.7 5 5 6.5 6
Sun Pharma 5.6 5.9 6.7 7.8 6.8
Torrent 3.8 4.1 4.1 3.1 7.4
Source: Company, HDFC Sec
6 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Expect recovery in the domestic business
Domestic formulations is the second-largest revenue contributor for Cadila, accounting for 34% of FY17 revenues. Cadila is the fourth-
largest company in the domestic market with a 4.2% market share. Cadila’s key therapies are cardio vascular (CVS), gastro intestinal
(GI), anti-infective and respiratory.
In the domestic market, Cadila has field force of 5,900 and 1,500 managers. Cadila aims to focus on high-growth therapeutic areas,
outperform the domestic market and improve operational efficiencies by raising sales-force productivity and improving technology.
Growth impacted by external factors in recent times
Cadila’s domestic business was impacted in the past two years by (i) the National Pharmaceutical Pricing Authority (NPPA) capping prices,
(ii) ban on fixed dosage combinations and (iii) demonetisation. IV) GST. Cadila posted growth of 9% in FY17; If excluded the impact of
the price reduction on NLEM products and discontinued fixed combination drugs, growth was ~13%.
Over the years, growth in Cadila’s domestic business has been impeded by slow growth in its top 10 products. These products account for
~30% of revenues, reported flat growth in FY17 compared with 9% growth in the portfolio.
Given the challenges in the mature portfolio, new product launches will be key to accelerating growth; Cadila has been working on it.
Cadila has been one of the more aggressive players in the domestic market in terms of new product launches. It launched 75 new products
in FY17 including 17 first-time launches. We expect this launch momentum to continue.
Q1FY18 key highlights
US
Company launched 3 new products; Received 18 new approvals, including Lialda.
It has filed 2 new ANDAs.
Mid-low double digit YoY price erosion.
Ex-Sentynl and Tamiflu, base business volumes grew. However, they were flat due to price erosion.
Launched 3-4 products. Majority launches scheduled for next 2 quarters. 20-25% of approvals will not be launched due to
commercial reasons.
The company believes pipeline can fill in gap post Lialda and other key products.
Guidance
R&D: 8% of revenue for FY18. Focus areas: NCEs, biologics and ANDA pipeline
Tax rate: Below 20%
EBITDA margin for FY18: Above 20%
7 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Company received EIR for Moraiya and Baddi manufacturing plants in Q1FY18
Management expects US base business erosion in mid‐single digit to low double digit in FY18E.
Capex incurred in FY17E was Rs3.7bn and management guided for capex of Rs10bn in FY18E due to expected approvals from
Moraiya and Baddi plant, which would require additional capex.
Key products status:
Lialda: Launched in July 2017. Better than expected performance. Does not expect an AG. It has 180-day exclusivity. FDA has not
determined 180 days exclusivity; FDA will determine it only if any other player is close to receiving approval
Tamiflu: Has filings for tablet and suspension as well. Expects to sell in the flu season. Suspension - only 2 filers. Tablets- 3 filers
Renvela: Has an API source challenge (not a regulatory issue). Looking for an alternate API.
LatAm – Brazil and Mexico
In FY17, LatAm accounted for 3% of Cadila’s revenues. The focus area for Cadila is Brazil and Mexico, having a presence in branded and
generics products. Mexico accounts for very small part of LatAm revenues as Cadila had just commenced operations, launching its first
product in 2013. The focus-therapeutic segments (branded) for Cadila in LatAm are female healthcare, hepatology, CNS, CVS,
nutraceuticals and pain management.
In the past couple of years, the LatAm operations, particularly in Brazil, were significantly impacted by the lack of product approvals and
adverse foreign exchange movements. Off late, however, operations there have shown some improvement, led by stable currencies.
Consumer wellness
The consumer wellness segment accounted for 5% of Cadila’s FY17 revenues. Within these, the three broad segments are artificial
sweetener (sugar substitutes), skincare and margarine. Cadila is a leader in sugar substitutes (Sugar Free) and in a couple of sub-
categories such as Everyuth scrub and peel-off skin care products. It offers Nutralite in the heath food segment.
8 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Animal Health
The Company is one of the leading animal healthcare players in India having a portfolio of drugs, vaccines and feed supplements for
livestock, poultry and companion animals. Company has successfully integrated the manufacturing operations and select brands which it
acquired from the subsidiary of Zoetis Inc. during the previous financial year. During the year, the Company commenced the exports from
India by supplying the products to seven countries. The Company further strengthened its position in the Indian market by launching five
new products during the year. Overall, the Company’s animal health business posted sales of Rs. 450cr. during the year, up 42%.
The Animal Health segment accounted for 5% of Cadila’s FY17 revenues. In July 2011, Cadila acquired Bremer Pharma to enhance its
global Animal Health division. Today, Cadila has two manufacturing facilities, one in Haridwar (India) and the other in Warburg (Germany)
and a presence in key markets in Europe, South America, Asia and Africa. Cadila has used both organic and inorganic methods to expand
in the segment. Recently, Cadila acquired select brands and manufacturing facilities in India from Zoetis, a global animal healthcare
company, to expand its presence in India.
Robust earnings visibility over FY17-20E; BUY with TP of Rs 620
With the resolution of US FDA issues and strong near-term growth visibility, Cadila is well placed to step up investments in medium-term
drivers such as vaccines, biosimilars, complex generics, etc. We also expect Cadila to step up inorganic initiatives to strengthen its US
speciality franchise and meet other strategic imperatives. We have envisaged 15.5% revenue cagr over FY17-20E along with 430bps
margin expansion. Robust growth from US business and healthy revenue visibility from domestic market would lead to better operational
performance. We forecast ~22% PAT cagr over the same period on the back of higher other income and share from JV partners. At CMP
of Rs 496, the stock trades at ~19x FY20E earnings, we see room for upside given robust earnings visibility, improving return ratios (FY19E
RoCE/RoE of 15%/21%, respectively. We recommend Cadila as BUY with TP of Rs 620 (23.5x FY19E EPS). We recommend the stock as
BUY at cmp of Rs 496 and add on dips to Rs 450-470 with sequential price targets of Rs 555 and Rs 620 over the next four quarters.
Key Risks
Delays in US ANDA approvals could hurt growth
Unexpected competition in US market for key molecules may hinder growth prospects.
Lower than expected growth in domestic market and pricing pressure in US market.
Regulatory hurdles for its plants
9 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Revenues to see Robust ~15% cagr over FY17-20E
Source: Company, HDFC sec Research
0
2000
4000
6000
8000
10000
12000
14000
16000
FY15 FY16 FY17 FY18E FY19E FY20E
EBITDA Margin trend over FY17-20E
Source: Company, HDFC sec Research
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY15 FY16 FY17 FY18E FY19E FY20E
PAT to witness 22% cagr over FY17-20E
Source: Company, HDFC sec Research
0
500
1000
1500
2000
2500
3000
FY15 FY16 FY17 FY18E FY19E FY20E
Return Ratios (%)
Source: Company, HDFC sec Research
37.9
23.5
19.9 20.823.2
26.6
15.612.7
14.817.1
0
5
10
15
20
25
30
35
40
FY16 FY17 FY18E FY19E FY20E
10 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Revenue Mix (%)
Source: Company, HDFC sec Research
39
34
5
5
5
48
US Formulations
India Business
EM Formulations
Animal Health
Wellness
APIs
Others
ANDA Filings over the past years
36
30
50
0
10
20
30
40
50
60
FY15 FY16 FY17
Domestic Segmental mix (%)
Source: Company, HDFC sec Research
15.3
14.2
11.5
9.99.2
9.6
7.1
23.2
Anti Infectives
Cardiac
Gastro
Respiratory
Gynaecology
PainManagementDermatology
Others
11 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Income Statement (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E
Net Revenues 94,268 94,295 116,922 131,777 146,871
Growth (%) 9.0 0.0 24.0 12.7 11.5
Material Expenses 30,959 34,451 39,753 45,595 50,671
Employee Expenses 12,616 15,002 16,603 18,317 20,121
SG&A Expenses 10,225 10,750 12,861 14,759 16,450
Other Operating Expenses 17,163 15,056 19,409 22,600 24,454
EBITDA 23,305 19,036 28,295 30,506 35,176
EBITDA Margin (%) 24.7 20.2 24.2 23.2 24.0
EBITDA Growth (%) 32.7 (18.3) 48.6 7.8 15.3
Depreciation 2,921 3,750 5,012 5,647 6,047
EBIT 20,384 15,286 23,283 24,860 29,128
Other Income (Including EO Items) 1,156 1,286 2,142 2,787 3,535
Interest 528 450 581 557 273
PBT 21,012 16,122 24,844 27,089 32,391
Tax (Incl Deferred) 1,774 1,289 4,472 5,418 6,478
Income from JV/Associates 430 338 893 1,126 1,315
Minority Interest 304 291 306 321 337
RPAT 19,364 14,880 20,960 22,476 26,891
EO (Loss) / Profit (Net Of Tax) - - (5,499) (2,904) -
APAT 19,364 14,880 15,461 19,572 26,891
APAT Growth (%) 68.3 -23.2 3.9 26.6 37.4
Adjusted EPS (Rs) 18.9 14.5 15.1 19.1 26.3
Source: Company, HDFC sec Research
Balance Sheet Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E
SOURCES OF FUNDS
Share Capital - Equity 1,024 1,024 1,024 1,024 1,024
Reserves 55,968 68,576 85,113 103,167 125,635
Total Shareholders Funds 56,992 69,600 86,137 104,191 126,659
Minority Interest 1,358 1,561 1,639 1,721 1,807
Long Term Debt 8,964 24,684 22,684 20,684 18,684
Short Term Debt 12,109 24,769 24,769 24,769 24,769
Total Debt 21,073 49,453 47,453 45,453 43,453
Net Deferred Taxes (3,176) (4,006) (4,265) (4,536) (4,821)
Other Non-current Liabilities & Provns
1,207 1,512 1,663 1,830 2,012
TOTAL SOURCES OF FUNDS 77,454 118,120 132,628 148,658 169,111
APPLICATION OF FUNDS
Net Block 26,067 32,904 45,860 51,669 55,333
CWIP 10,642 17,122 9,567 6,058 4,254
Goodwill 11,412 24,647 24,647 24,647 24,647
Investments 2,171 3,857 3,857 3,857 3,857
Other Non-current Assets 7,225 8,284 9,122 9,545 10,095
Total Non-current Assets 57,517 86,814 93,052 95,776 98,186
Cash & Equivalents 8,378 15,926 21,607 32,769 48,570
Inventories 13,371 18,037 21,069 24,165 26,855
Debtors 17,466 22,775 23,737 26,753 29,817
Other Current Assets 3,589 3,485 3,834 4,217 4,639
Total Current Assets 34,426 44,297 48,640 55,135 61,311
Creditors 13,081 16,736 21,864 25,077 27,869
Other Current Liabilities & Provns
9,786 12,181 8,807 9,944 11,087
Total Current Liabilities 22,867 28,917 30,672 35,022 38,956
Net Current Assets 11,559 15,380 17,968 20,113 22,355
TOTAL APPLICATION OF FUNDS 77,454 118,120 132,628 148,659 169,111
Source: Company, HDFC sec Research
12 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Cash Flow Statement Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E
Reported PBT 20,987 16,119 24,844 27,089 32,391
Non-operating & EO items (616) (579) (1,428) (2,027) (3,327)
Interest expenses 528 450 581 557 273
Depreciation 2,921 3,750 5,012 5,647 6,047
Working Capital Change 2,112 (5,435) (3,087) (2,669) (2,792)
Tax Paid (5,562) (2,119) (4,730) (5,689) (6,763)
OPERATING CASH FLOW ( a )
20,370 12,186 21,192 22,908 25,829
Capex (9,382) (29,747) (10,752) (7,847) (7,907)
Free cash flow (FCF) 10,988 (17,561) 10,440 15,061 17,921
Investments (984) (186) - - -
Non-operating Income 630 579 1,428 2,027 3,327
INVESTING CASH FLOW ( b ) (9,736) (29,354) (9,324) (5,820) (4,580)
Debt Issuance/(Repaid) (2,188) 28,380 (2,000) (2,000) (2,000)
Interest Expenses (528) (450) (581) (557) (273)
FCFE 7,918 10,762 9,287 14,531 18,976
Share Capital Issuance (0) - - - -
Dividend (3,936) (3,931) (4,423) (4,423) (4,423)
Others (3,772) 2,217 816 1,054 1,247
FINANCING CASH FLOW ( c ) (10,425) 26,216 (6,188) (5,926) (5,448)
NET CASH FLOW (a+b+c) 209 9,048 5,681 11,162 15,800 Source: Company, HDFC sec Research
Key Ratios FY16 FY17 FY18E FY19E FY20E
PROFITABILITY (%)
GPM 67.2 63.5 66.0 65.4 65.5
EBITDA Margin 24.7 20.2 24.2 23.2 24.0
APAT Margin 20.5 15.8 13.2 14.9 18.3
RoE 37.9 23.5 19.9 20.6 23.3
RoIC (or Core RoCE) 32.1 18.8 20.3 19.8 22.3
RoCE 26.6 15.6 12.7 14.2 17.1
EFFICIENCY
Tax Rate (%) 8.4 8.0 18.0 20.0 20.0
Fixed Asset Turnover (x) 2.3 1.9 1.7 1.7 1.7
Inventory (days) 51.8 69.8 65.8 66.9 66.7
Debtors (days) 67.6 88.2 74.1 74.1 74.1
Other Current Assets (days) 13.9 13.5 12.0 11.7 11.5
Payables (days) 50.6 64.8 68.3 69.5 69.3
Other Current Liab & Provns (days) 37.9 47.2 27.5 27.5 27.6
Cash Conversion Cycle (days) 44.8 59.5 56.1 55.7 55.6
Debt/EBITDA (x) 0.9 2.6 1.7 1.5 1.2
Net D/E (x) 0.2 0.5 0.3 0.1 (0.0)
Interest Coverage (x) 38.6 34.0 40.0 44.6 106.8
PER SHARE DATA (Rs)
EPS 18.9 14.5 15.1 19.1 26.3
Dividend 3.2 3.2 3.6 3.6 3.6
Book Value 55.6 68.0 84.1 101.8 123.7
VALUATION
P/E (x) 25.6 33.2 32.0 25.3 18.4
P/BV (x) 8.7 7.1 5.7 4.7 3.9
EV/EBITDA (x) 21.8 27.7 18.4 16.6 13.9
EV/Revenues (x) 5.4 5.6 4.5 3.8 3.3 Source: Company, HDFC sec Research
13 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Rating Chart
R E T U R N
HIGH
MEDIUM
LOW
LOW MEDIUM HIGH
RISK
Ratings Explanation:
RATING Risk - Return BEAR CASE BASE CASE BULL CASE
BLUE LOW RISK - LOW RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 20% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 15%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 15%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 20% OR
MORE
YELLOW MEDIUM RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 35% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 20%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 35% OR
MORE
RED HIGH RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 50% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 30%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 50%
OR MORE
14 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
Price Chart
50
150
250
350
450
550
650
No
v-1
6
De
c-1
6
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.
15 | P a g e
Cadila Healthcare
Power Systems
INVESTMENT IDEA
Nov 06, 2017
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