ICICI Securities Limited
Management Meet
November 25, 2010
Rating matrix
Rating
:
Unrated
Target
:
NA
Target Period
:
NA
Potential Upside
:
NA
Cadila Healthcare Limited (CADHEA)
| 777
Strong business model…
Key Financials
| Crore
Total Sales
EBITDA
Net profit
FY07
1855
378
234
FY08
2323
458
258
FY09
2928
606
303
FY 10
3687
809
505
FY07
11.5
67.9
43.0
18.3
30.9
24.0
FY08
12.6
61.6
36.3
15.0
27.2
22.4
FY09
14.8
52.4
27.9
12.9
26.4
22.4
FY 10
24.7
31.5
20.7
9.8
37.0
25.8
Valuation summary
EPS (|)
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (x)
RoCE (x)
Business model
Domestic market
Stock data
Market Cap (|crore)
Debt (FY10)
Cash (FY10)
EV (| crore)
52 Week H/L
Equity Capital (|crore)
Face Value (|)
MF Holding (%)
FII Holding (%)
15889
1091
251
16729.48
809/377
102.17
5
13.7
5.0
Price movement
900
7000
800
6000
700
5000
600
500
4000
400
3000
300
2000
200
1000
100
Cadila
Sept
Ju
M
Mar
0
Jan
0
Nov
We met the management of Cadila Healthcare (CHL) to get an insight
into their business model and growth plans. CHL is an integrated large
size pharmaceutical company with a strong foothold in domestic
formulations and global generics. It also has a presence in APIs,
consumer healthcare, CRAMS, animal healthcare and biologics. CHL is
the first Indian company to manufacture vaccine for swine flu. Global
pharma major Abbott signed an agreement with the company to market
24 products of CHL in 15 high growth emerging markets. It has recently
commissioned an API manufacturing facility under the Nycomed JV. In
the last four years, the company did five acquisition outside India and
two in India.
CHL is the fifth-largest player in the Indian formulation market with a
market share of 3.7% as per a recent ORG IMS report. Around 40% of
total sales come from the domestic market. It has a strong presence in
therapeutic segments such as cardiovascular (CVS), gastro intestinal (GI),
female healthcare (FHC), anti-infective (AI), respiratory and pain
management in the domestic market. Total 16 of its brands are from the
top 300 brands list.
CHL is aggressively expanding its product portfolio with average launches
of 50 products (including line extensions) per year. The company has inlicensing agreements with MNCs like Bayer Schering Pharma, Boehringer
Ingelheim, Nycomed, Baxter and Genzyme Inc. To further increase its
market share in the cardiology and respiratory segments, it has recently
added ~400 people taking the total field force count to more than 4400.
CHL has a small presence in the vaccines and biosimilars business. It
market two vaccines i.e. anti-rabies vaccine and Vaxiflu-S Vaccine in the
domestic market. Till date, it has launched two biosimilars. Sales from
biosimilars account for 3% of total domestic market sales. It is developing
a strong pipeline of 15 biosimilars and two novel products.
Nifty
Analyst’s name
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Krishna Kiran Konduri
krishna.konduri@icicisecurities.com
Exhibit 1: Financials
| Crore
Total sales
EBITDA Margins
Depreciation
Interest
Other income
Net Profit
EPS (|)
FY06
1481
19.2
78
23
5
152
7.4
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
FY07
1855
20.4
82
31
9
234
11.5
FY08
2323
19.7
97
52
21
258
12.6
FY09
2928
20.7
112
98
-3
303
14.8
FY 10
3687
21.9
134
81
15
505
24.7
H1FY11
2250
24.1
62
40
7
370
18.1
ICICI Securities Limited
International Markets
CHL operates in regulated markets like US, EU, Japan and semi-regulated
markets such as Latin America, Asia Pacific, Africa and Middle East
regions. Nearly ~44% of sales come from international operations.
The company entered into the US market in FY05. Around 18% of the
total sales come from this market. Till date, it has filed 115 ANDAs with
the USFDA, received approvals for 58 products and launched 35
products. Of the launched 35 products, it enjoys more than 20% market
share for 14 products. It is planning to launch eight to 10 products every
year.
In EU, CHL operates in France and Spain. Sales from both markets
account for nearly 8% of total sales. Till date, it has launched 90
molecules in the France market and 30 in the Spain market. It is planning
to increase its presence in both markets by increasing product launches.
CHL operates in the Japanese market through its subsidiary Nippon
Universal Pharma. Till date, it has launched 24 products and all products
were in-licensed. Currently, it is building up a product pipeline and
expects to launch in-built products in the next fiscal. It has a field force of
30 in the Japanese market.
In the Brazilian market, CHL markets both branded generics and generic
generics. It entered the generic market by setting up a wholly-owned
subsidiary Zydus Healthcare in FY06. Later, in FY08, it acquired Nikkho
and forayed into the branded generics market. Till date, 60 dossiers were
filed in both the generic and branded space from India of which 20 got
approved and 14 were launched. The sales from Brazilian markets
currently accounts for 5% of total sales. The company is planning to
increase the product portfolio in both the branded and generic markets
with eight to 10 launches every year.
CHL operates in more than 20 semi-regulated and emerging markets of
Asia Pacific, Africa and Middle East regions. It is currently focusing on
South Africa, Taiwan, Philippines, Uganda, Sudan, Sri Lanka and
Myanmar markets. It entered the South Africa market in the last fiscal by
acquiring Simayla Pharmaceuticals.
Consumer business
CHL is a leading player in the niche Indian consumer wellness market with
three strong brands, namely, Sugar Free, EverYuth and Nutralite through
its subsidiary Zydus Wellness. CHL holds 72% of its stake in Zydus
Wellness. The management plans to expand the consumer business by
launching new line extensions in existing brands and venturing into new
brands.
JVs
CHL has tied up with two MNC players i.e. Nycomed and Hospira and one
Indian biotech firm Bharat Serums and Vaccines to supply intermediates,
API and formulations.
ICICIdirect.com | Equity Research
Page 2
ICICI Securities Limited
Under Zydus Nycomed JV (50:50), so far the company was supplying
intermediates for anti-ulcerent drug Pantoprazole. As the patent for
Pantoprazole is set expire in the 2011, CHL has extended the supply
agreement with Nycomed to supply 14 APIs of which eight will be
supplied by JV and four will be supplied by CHL. It has recently
commenced its API manufacturing facility under this JV.
Zydus Hospira JV is a 50:50 joint venture between CHL and Hospira. This
JV plans to manufacture six oncology products for both EU and US
markets. Currently it is supplying three products to EU and one product to
US market.
Alliance
Global pharma major Abbott signed an agreement with the company to
market 24 products of CHL in 15 high growth emerging markets. CHL
holds an option to add 40 more products.
R&D
CHL is developing 12 new molecules (NMEs), of which ZYH1 and ZYI1 are
in Phase III and Phase II clinical trails. It spends nearly ~6-7% of sales on
total R&D expenditure.
View
Cadila Healthcare is one of the few pharma companies with a diversified
business model. The topline has grown at a CAGR of ~26% over FY06FY10 driven by both organic and inorganic growth. The management is
aiming for sales to touch US$1 billion in the current fiscal and US$3 billion
by FY16. We expect the company to continue the growth momentum on
account of a strong domestic presence and growing tractions from
regulated and semi-regulated markets.
Exhibit 2: Biosimilars and vaccines pipeline
Product
G-CSF
Peg G-CSF
IF-a-2b
Peg IFN-a-2b
IFN-b1b
EPO
Prod1
Prod2
Prod3
Prod4
MAb1
Tenecteplase
MAb2
MAb3
MAb4
Peg EPO
Rabies Mabs
Expression Host
E.coli
E.coli
P pastoris
P pastoris
E.coli
CHO
CHO
CHO
CHO
CHO
CHO
CHO
CHO
CHO
CHO
CHO
Murine
Development Stage
Launched
Clinical Trails
Launched
Clinical Trails
Clinical Trails
Clinical Trails
Development
Development
Development
Development
Development
Development
Development
Development
Development
Development
Development
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
Page 3
ICICI Securities Limited
Exhibit 3: Inorganic expansion over last four years
Year
Country
Company Name Stake (%)
Drivers for Acquisition
FY10
South Africa
Simayla Pharmaceuticals
100.0
Entry in the South African generics market
FY09
Italy
Etna Biotech
100.0
Strengthen R&D initiatives in vaccines segment
FY09
Spain
Laboratorios Combix
100.0
Entry in the Spanish generics market
FY08
Brazil
Quimica e Farmaceutica Nikkho do Brasil
Ltda.
100.0
Entry in the Brazilian generic market, expand existing product portfolio and
coverage
FY08
India
Sarabhai Zydus Animal Health Ltd.
100.0
Expansion of animal healthcare business
FY08
Japan
Nippon Universal Pharmaceutical Ltd.
100.0
Stregthen position in Japanese generic market, access to ready manufacturing
and marketing base, distribution network
FY07
India
Liva Healthcare
97.5
Establish presence in the Indian dermatology market
Source: Company, ICICIdirect.com Research
Exhibit 4: NME pipeline
Molecule
ZYH1
ZYI1
ZYO1
ZYH2
ZYH7
ZYT1
ZYD1
ZYOG1
Collagorative research programe with Karo Bio
Collagorative research programe with Eli Lilly
Target
PPAR alpha:gamma
Multi-modal
CB-1 antagonist
PPAR alpha:gamma
PPAR alpha
TR beta Agonist
GLP-1 agonist
GLP-1 agonist
Undisclosed
Undisclosed
GR Agonist
Undisclosed
Use
Dyslipidemia
Pain
Obesity
Diabetes
Dyslipidemia & metabolic disorders
Dyslipidemia
Diabetes
Diabetes
Diabetes
Artherosclerotic Plaque
Inflammation
CVS
Development Stage
Phase III
Phase II
Phase I
Phase I
Phase I
Phase I
IND
Preclinical development
IND
Preclinical development
Lead Optimisation
Lead Optimisation
Source: Company, ICICIdirect.com Research
Exhibit 5: Break-up of sales
4,000
3,687
2,928
3,000
(| crore)
2,323
2,000
2250
1,855
1,481
1,000
0
FY06
FY07
FY08
FY09
FY10
H1FY11
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
Page 4
ICICI Securities Limited
Exhibit 6: Break-up of FY10 domestic sales
Gastro Intestinals
16%
Neurologicals and Pain
Mgmt
10%
Female Healthcare
11%
Respiratory
11%
Cardiovasculars
21%
Others*
20%
Anti-infectives
11%
Source: Company, ICICIdirect.com Research
Exhibit 7: Break-up of sales
100
(%)
75
4
20
4
4
3
3
4
4
28
34
40
44
43
7
8
7
7
50
25
68
7
59
52
46
41
42
FY07
FY08
FY09
FY10
H1FY11
0
FY06
Domestic Formulations*
Zydus Wellness
Export Formulations*
Alliances
Animal Health Business
Source: Company, ICICIdirect.com Research
Exhibit 8: ANDA filings with USFDA till H1FY11
140
120
100
80
60
40
20
0
FY08
FY09
Filed
FY10
Approved
H1FY11
Launched
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
Page 5
ICICI Securities Limited
Exhibit 9: EBITDA trend
EBITDA (%)
30
25
20
26.2
22.6
20.6
19
20.6
22.5
21.7
21.2
22.4
21.9
15
10
5
0
Q1FY09 Q2FY09 Q2FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11
EBITDA (%)
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
Page 6
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce, and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
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We /I, Siddhant Khandekar CA-INTER, Kiran Konduri BE-MBA, FINANCE
research analysts, authors and the names subscribed to this report, hereby certify that all of the views
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indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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