US growth drives Cadila in December quarter

Weak India business, but company riding on strong US momentum

Cadila Healthcare reported better-than- expected performance for the December quarter, driven largely by strong growth in US sales. Sales at ~3,516 crore, up 10.6 per cent year-on-year (YoY), came ahead of consensus estimates of ~3,227 crore.

Analysts had been expecting tepid growth in the US, considering last year’s high base that included contributions from large products such as the generic Tamiflu (flu treatment) and generic Lialda (ulcerative colitis treatment drug).

Nevertheless, US sales — contributing more than half to overall sales at ~1,934 crore — grew 22 per cent YoY and 46 per cent sequentially. The growth was led by 15 new launches, including authorised generics of

(a hormone).

Analysts such as Krishnanath Munde at Reliance Securities feel the steady rise in market share of the generic Asacol HD (used to treat inflammatory bowel disease) should also have driven growth. The firm is also likely to have felt a lower pinch of price erosion in US markets during the quarter.

However, benefits of the good US show were partly offset by declining domestic sales due to rationalisation of portfolio. The India business (24 per cent contribution) fell 8 per cent YoY and 5 per cent sequentially. A matured India portfolio led the company to rationalise its products.

This was to focus on profitable drugs and improve business productivity. Androgen The company expects normalisation of domestic growth by the June 2019 quarter.

The weak India business impacted gross margins, which, at 62.2 per cent, were down 336 basis points (bps) YoY and 430 bps sequentially.

Earnings before interest, tax, depreciation, and amortisation declined 0.4 per cent, while margins at 23.5 per cent came 249 bps lower YoY.

Nevertheless, operating profit at ~840 crore was better than analysts’ estimates of ~742 crore. Net profit at ~510 crore (down 6 per cent YoY) was still better than analyst estimates of ~456 crore.

Looking at the momentum in US markets, analysts remain positive on the company’s prospects. Analysts at Motilal Oswal Securities had, prior to the results, indicated that with its robust ANDA pipeline for the US market and minimal regulatory hurdles, they remain positive on prospects.

The stock currently trades at 16.5 times and 14.6 times its FY19 and FY20 earnings estimates, respectively.