Ahmedabad Visit Note
Cadila Healthcare Limited.
Recommendation Maintain BUY
CMP Rs316
Target Price Rs417
We expect CHL to record revenue CAGR of 20% to Rs24.9bn over FY06-09 driven by strong growth in the export formulations market. Domestic formulations growth is likely to rebound in FY08 and would be above industry average growth. We estimate operating margins to expand by 450bps to 21.7% over FY06-09 driven by US contribution, turnaround of Zydus France and strong foothold in the domestic formulations space. Although there are concerns over the patent loss of Pantoprazole, the management is confident of no launch at risk by generic companies considering the complexity of the product. We estimate net profit to witness revenue CAGR of 32% to Rs3.5bn during the same period. At Rs316, the stock is trading at 17.7x FY07E EPS of Rs17.8, 14.3x FY08E EPS of Rs22.1 and 11.4x FY09E
EPS of Rs27.8. We believe CHL should trade at 19x FY08E and 15x FY09E considering increasing visibility in export formulations, strong foothold in the domestic market and return ratios in excess of 22%. We introduce FY09 estimates and maintain BUY with a target price of Rs417, an upside of 32%.