Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs425
Current market price: Rs326
Liva acquisition, US approvals strengthen Cadila
Key points
- Zydus Cadila (Cadila) has acquired a 97.5% stake in Mumbai-based Liva Healthcare (Liva), a mid-sized Indian pharma company, in an all-cash deal. The all-cash transaction will be funded through cash accruals and debt. The size of the deal has not been disclosed.
- The acquisition of Liva will enable Cadila to foray into the Rs1,500-crore dermatology segment in India and thus strengthen its domestic product portfolio, allowing it to offer a more comprehensive product range. With Liva's 325-people sales force, which already has established relationships and strong brand equity amongst the dermatologists, cosmetologists and beauticians, Cadila will be able to make fast in-roads into this rapidly growing segment.
- Cadila has received three product approvals from the US Food and Drug Authority (US FDA) in quick succession. The company has received the final approval to market Azathioprine tablets of 50mg strength and has received tentative approvals for Divalproex Sodium Extended Release tablets in strengths of 250mg and 500mg, and Venlafaxine Hydrochloride tablets in strengths of 25mg, 37.5mg, 50mg, 75mg and 100mg.
- We estimate the above three products would together contribute $13.1 million (approximately Rs40.5 crore) in FY2008E and $15.4 million (approximately Rs69 crore) in FY2009E to Cadila's total revenues. The same three products are likely to contribute approximately Rs0.90 to Cadila's FY2008E earnings and Rs1.10 to its FY2009E earnings.
- At the current market price of Rs326, Cadila is trading at 14.8x its estimated FY2008 earnings and at 12.2x its estimated FY2009 earnings. The stock has underperformed the market in recent times, but we believe that as Cadila's international efforts start translating into gains and growth in the domestic market rebounds, the stock's performance would improve. Considering the strong growth momentum of the company, we maintain our Buy recommendation on the stock with a price target of Rs425.
VIEWPOINT
DS Kulkarni Developers
Strong project pipeline
At present, the company has residential and commercial projects at various locations in Pune (94%), Mumbai (4%) and Bangalore (2%). These cumulatively amount to 17.5 million sf of saleable area that is targeted for development over the next five to seven years. It includes the planned special economic zone (SEZ) project across 250 acre located at the outskirts of Pune on the Pune-Solhapur highway. The company is also planning a 130-acre township project close to its SEZ site
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