Nomura Financial Advisory and Securities has maintained 'Buy' on Cadila Healthcare (CDH) with revised target of Rs 1,874 from Rs 1,699 as against current market price (CMP) of RS 1,689 in its report.
Commenting on the investment rationale, Nomura said, ''CDH's 4QFY15 results were above our expectations. Revenue recorded 16% growth Y-Y, 2% above our estimates. EBITDA was Rs 5.3 billion (adjusted for forex loss), 8%/14% ahead of our/consensus estimates respectively. EBITDA margin was healthy at 23.7% recording 480bps and 240bps improvement Y-Y and Q-Q respectively.
We believe the improved pricing environment and market share gains in Hydroxychloroquibe Sulphate (HCQS) in the US was a key contributor to improved financial performance. Reported CDH recorded forex loss of INR 400m in the quarter. Adjusted for forex loss and exceptional items, the net earnings were 15% ahead of our estimates.
In terms of segmental performance, US with 44% growth Y-Y and USD 13 million rise Q-Q was the strongest segment. Growth at most of the other segments was below our estimates. Lack of product approvals, pricing pressure and adverse currency movement impacted sales growth in ex US segments.
We factor in FY15 results (higher contribution from HCQS), management commentary and change in currencies into our estimates. Our earnings estimate for FY16/17 change by 11.5%/9.9% respectively. We value the base business (ex-Asacol HD) at 19x FY17F EPS of Rs 90.9. We value the Asacol HD opportunity at 8x FY17F EPS of Rs 18.3 to arrive at a valuation of Rs 146/sh. US product approvals remain the key catalyst.''
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