Home >Markets >Mark To Market >Slowing growth momentum may weigh on Cadila Healthcare stock
Overall revenue growth was slow during the quarter, rising 0.5%. (Photo: Hemant Mishra/ Mint)
Overall revenue growth was slow during the quarter, rising 0.5%. (Photo: Hemant Mishra/ Mint)

Slowing growth momentum may weigh on Cadila Healthcare stock

  • The US market did not quite seem to benefit from the pre-covid-19 stocking, with revenues falling about 2% year-on-year. Domestic revenues were flat in Q4

MUMBAI: Cadila Healthcare’s Q4 numbers were lacklustre due to disruption caused by covid-19. Business both in the US and domestic market slowed down during the last quarter. This could put the stock’s performance at risk. Shares were down 1.2% at 357.85 on Monday.

Overall revenue growth was slow during the quarter, rising 0.5%. Its consumer business managed to clock double-digit growth which helped offset the contraction in US and India formulations segment.

The US market did not quite seem to benefit from the pre-covid-19 stocking, with revenues falling about 2% year-on-year. Domestic revenues were flat in Q4. In FY20, domestic revenue grew about 6%, slower than the domestic industry's 9.6% rise. As such, challenges related to covid-19 remain quite high.

On a positive note, the consumer business reported an impressive growth of about 21% y-o-y, and some of the benefits were due to the restructuring of the segment - integration of Heinz products in company portfolio.

Nevertheless, this did not quite help prop up margins. Lower pharma sales dragged operating leverage down and hit Ebitda growth. To some extent, lower raw material costs helped but the firm incurred higher staff expenses. Research and development spend rose 7.6%. This pulled down Ebitda margins to 21.1% in Q4 from 22.5% in the year-ago period.

Further, a warning from the US Food and Drug Administration for the company's Moraiya facility is expected to weigh on the growth momentum. The site has about 32 abbreviated new drug applications pending, though some launches could be moved to other sites.

"We expect the site transfer of all approved injectables from Moraiya to the Liva pharma facility to pick up pace with the first product transferred to the Liva facility being launched in May’20 and all new filings expected to be made from the facility," said JM Financial Institutional Equities in a note to clients.

Going ahead, Cadila expects to launch about 30 new products in the US, which is a decent number. To an extent, this could keep US revenue ticking. Besides, pricing pressures has eased in recent times in that geography. The debt reduction plan of about 800-1,000 crore could also aid profitability.

But the stock has run up considerably in 2020, clocking gains of about 41%. The slowing growth momentum could be a hitch.

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