Cadila Healthcare’s business model is rare among Indian companies. It generates ~20% of its profits from CRAMS (single product from Zydus Nycomed JV) while also selling generics and API to regulated markets. In the domestic space, it is present in both ethical and OTC segments – another rarity.
Cadila’s JVs with Hospira and BSV have increased revenue visibility for CRAMS – 55% CAGR over FY09E-FY11E.
Profit growth from this business is likely to be muted, as contribution from high margin Pantaprazole falls. Upside to our estimates is more than likely if Cadila receives more orders from Hospira.
Since FY06, Cadila has acquired companies in Brazil, South Africa, France and Japan – that provide it a distribution base in these countries.
This has led to higher growth in export formulation (30% of sales) – up 63% since FY06, clocking in growth rate of 22% through FY11E.
Revenue and PAT are estimated to post 20% and 26% CAGR respectively over FY08-FY11E - among the highest in Indian pharmaceutical space. Further, unlike its peers, Cadila faces no litigation risk.
The stock trades at 11x FY10E – a 40% discount to its peers – ignoring the stability and low risk nature of its new avatar.
This, we believe, offers one of the best investment opportunities in Pharma. BUY.