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Cadila Healthcare Ltd has seen its stock prices correct more than 30% from highs seen in May’21. The muted near term growth expectations have kept investor sentiments under check. 

As the extraordinary gains from covid treatment drug sales during the June quarter softened, the high base in the domestic market added to the muted near-term growth expectations.  The delay in execution of the vaccine too has been a reason for softening of investor sentiments. Its sales growth in the US being impacted by pricing pressure too didn't impress much.

The result expectations for the December quarter reflect the same. “The company is expected to see a 10% decline in earnings on account of moderation in covid contribution, disposal of Animal health business and delay in execution of covid vaccine supply," said analysts at PhillipCapital India Research in their Q3 result preview.

However, analysts maintain a positive view on earnings growth from here on. The growth in the US market is likely to get support from increasing new product launches. The company is likely to launch about 50 new products in the US during 2022. The new product launches should take care of pricing pressure in the US base business that is seeing high competitive intensity. The resolution of regulatory issues pertaining to the Moraiya manufacturing facility too will be watched for. Any positive development can provide a trigger as plant clearance can lead to increased product approvals and launches in the US.

Meanwhile, the management plans to create a $250 million-plus franchise each for injectables and vaccines. Launch of injectables and niche low competition launches are the future building blocks for the US business, said analysts at HDFC Securities Ltd. They added that Cadila’s material capital allocation in transdermals, vaccines, NCEs (Novel Chemical entities) and biosimilars would lead to healthy earnings growth over the next 2-3 years.

Domestic business prospects remain firm too. Though the base remains high due to higher covid treatment drug contributions, nevertheless ex-Covid business growth remains strong. Analysts at JM Financial Institutional Securities in a December note had said that “on the domestic front, Cadila continues to grow in high-teens (ex-Covid) driven by new product launches, volume growth, and market share gains in key therapeutic areas". They add that Vaccine opportunity remains underappreciated. The Covid Vaccine contributions are likely to start from the March quarter and rising Omicron cases can lead to better than expected sales, feel analysts.

Overall, analysts at HDFC Securities expect adjusted net profit to register 9% CAGR (compound annual growth rate) on the back of steady margin and lower interest expenses over FY21-24.

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