Cadila’s 3QFY2009 performance was ahead of our expectations with the company posting net sales of Rs736.3 crore, a y-o-y growth of 31.1%. Growth during the period continued to be driven by exports, which increased 52.1% y-o-y.
Robust sales growth along with expansion of OPMs aided net profit to surge 17.6% during the quarter to Rs60.5 crore. With this, for 9MFY2009, the company posted net profits of Rs245.1 crore, up 19.2% y-o-y.
For 3QFY2009, the company’s domestic formulation business grew 11.9% to Rs310.8 crore slightly below our expectation on account of excise rate cut pass through. However, the company expects this segment to grow above the industry average going forward.
At Rs245, the stock is trading at 10.5x FY2009E and 8.4x FY2010E earnings, which is at a significant discount to its peers.
While over dependence on Nycomed has been a major concern, we believe that new client additions in the segment would aid de-risking and reduce the company’s dependence on the same.
Further, the Hospira JV is expected to commercialise in April 2009 and start contributing to the company’s bottomline from FY2010.
Excluding any upsides from the JVs and factoring in a decline in profitability of Nycomed, we expect the company to post a CAGR of 24% in net profit over FY2008-10E.
However, we have reduced our PE multiple to 12x (15x), a 25% discount to the industry average of 16x, to bring it in line with peers. We maintain a BUY on the stock, with a revised target price of Rs350 (Rs450).