Cadila Healthcare has a very rare business model among Indian pharmaceutical companies. Its revenue mix is composed of CRAM (contract research and manufacturing) and formulation sales. Approximately 20 per cent of its profits are derived from the CRAM space and rest of the 80 per cent comes through its formulations and API businesses. In the domestic market it is present in both ethical and over-the-counter (OTC) segments.
A spree of acquisitions worldwide has given Cadila Healthcare a foot-hold in countries as varied as Brazil, South Africa, France and Japan. This has led to a higher growth being registered in export formulation accounting for 30 per cent of current sales -- a jump of 63 per cent since FY06.
In the domestic market too, Cadila has been able to expand its sales over the last decade. It is currently ranked 5th among the pharma majors. Its growth in the ethical market is inline with the industry growth (11%). But its growth in the OTC segment has been phenomenal -- it now comprises 11 per cent of its total sales, which translates into a CAGR growth of 36 per cent. According BRICS Securities, though growth in the ethical segment is going to remain intact, but this segment will see marginal pressure on the bottomline.
The joint venture with Hospira and BSV has been able to push up the revenue in the CRAMs space. CAGR growth of this segment has been 55 per cent over FY09E to FY11E. BRICS Securities is of the view that there is a chance of a possible upside in this segment for Cadila if it receives further orders from Hospira. Without tangible future orders, growth in the CRAM segment is going to be muted, as contribution of high-margin Pantaprazole falls.
Estimated revenue and profit growth of 20 per cent and 26 per cent CAGR growth respectively over FY08 to FY11E by BRICS Securities puts Cadila at the highest level among Indian pharma companies. No litigation risk also makes this stock a strong buy among the pharma space.
Currently it trades at a PE of 11 times its FY10E earnings, which translates into a discount of 40 per cent compared to its peers. A diversified business model discounts considerably the volatility in earnings. Taking this into account the stock looks quite attractive at the present levels and can be considered for accumulation.