Cadila Healthcare

Investors with a long-term perspective can consider taking exposure to the stock of Cadila Healthcare.

The company's strong product pipeline, expected contributions from its Hospira joint venture and a strengthening presence in the high-margin domestic consumer markets (through its listed subsidiary Zydus Wellness) point towards healthy growth potential over the long term.

Cadila's improving focus on the domestic pharmaceutical market through product launches, in-licensing arrangements, and a special focus on rural markets also promise further growth in the domestic market.

At current market price of Rs 564, the stock trades at an expected FY-11 price earnings multiple of about 19 times. This appears reasonable given its long-term growth potential.

Possible triggers from its R&D pipeline and the commercial launch of H1N1 drug can also provide further upside to the stock price. Investors may, however, consider a phased accumulation of the stock.

For the coming year, the management has given a guidance of $1 billion revenues. It expects growth to be driven by international revenues, largely helped by its presence in the US. Given the company's robust regulatory pipeline of 106 abbreviated new drug application (ANDA) filings and 90 drug master files (DMFs), and its focus on filing for niche, difficult-to-make products, a ramp up in US generic revenues may not be difficult to achieve. Cadila plans to file 12-15 ANDAs annually for the US market each year. For the year ended March 2010, it received 12 ANDA approvals, taking the total to 54.

New product launches and improvement in the market share of existing products would help push US revenues; introduction of generic version of Flomax providing significant revenue opportunity. Overall, Cadila's export formulations business reported a 45 per cent revenue growth last year. Domestic revenues, which grew by over 12 per cent in FY10, are expected to expand by 15 per cent in the coming year.

Cadila's joint venture with Nycomed, which supplies final active ingredient for Pantoprazole drug, is expected to see a fall in revenues in the next couple of years (as the drug is set to lose patent by February 2011 in the US).

However, the extent of fall in revenues may not be drastic since the company will soon start the supply of 14 new Active Pharmaceutical Ingredients (APIs).

The recent US court ruling upholding the patent on Pantoprazole drug too may provide a short-term reprieve, given the possibility of a fall in sales from Teva and Sun Pharmaceuticals.

The ramp up in production by its joint venture with Hospira will also provide further long-term thrust.

via BL