Cadila healthcare- Stock Analysis

Created on 01 Jun 2019

Wraps up in 3 Min

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Updated on 13 Sep 2023

Cadila healthcare Stock Review

Cadila Healthcare is a 65-year-old pharmaceutical company with its presence in India, Europe, Africa, Middle East, Mexico, Brazil and most importantly, the USA. Headquartered in Ahmedabad, the company has over 35 manufacturing facilities and over 23500 employees. The company has its presence across the pharmaceutical value chain of research, development, manufacturing, marketing and selling of finished dosage human formulations (generics, branded generics and specialty formulations, including biosimilars and vaccines), active pharmaceutical ingredients (‘APIs’), animal healthcare products and consumer wellness products. The Company is also engaged in research and development activities focused across the value chain of API process development, generics development, biologics, vaccines, and New Chemical Entities (‘NCE’).

What is Good?

Cadila Healthcare has a prominent presence in the growing US market. Even with such stiff competition in the pharma industry, Cadila has managed to squeeze out for itself a 3.05% market share in the US and 4.1 % market share in India. The company also has a huge number of ANDAs filed with the US FDA. On a cumulative basis, as at 31st March 2019, Cadila managed to get over 360 ANDAs approved by the US FDA.

Management Analysis-

The Cadila Group is headed Chairman Mr.Pankaj R. Patel and MD Dr.Sharvil P. Patel. The management has proved to be one of the major drivers for the success of the company. Cadila’s strategic acquisitions stand witness to the management’s competence. Even though going ahead with the inorganic growth strategy, the management has managed to keep its debt under control. Also, the return ratios outdo their competitors and this too speaks volumes for the management.

Management score: 9/10

Industry Analysis-

The sales of prescription drugs are said to have had a very slow growth rate in the recent past. This was mainly due to continued pricing pressure on generics.US being the world’s largest pharmaceutical market, and also where Cadila gets most its revenue from, unbranded generics have reached the highest prescription share of over 85% of the total market in the recent past. The unbranded generic prescription volume continues to have a steady demand in the US.

The aging population of the US is only set to increase growth in this market.  One thing about the pharma industry is the number of regulations, inspections, and approvals. These two play a huge role in the company’s fortunes. There are regulations on pricing, manufacturing and also marketing in some cases. Also, the industry is packed with a lot of packed with many players making it an intensely competitive one.

To read the complete analysis of the Pharma Sector, Subscribe to the Academy of value investing.

Industry score: 8/10

Business analysis-

Cadila’s major revenues (over 50%) come from the US formulations business. Second, stands the India formulations market (30%). The remaining business comes from APIs, consumer wellness, animal health, etc. Cadila is also a global player in the emerging biosimilar space. It has a portfolio of 10+ commercial biosimilar products on the Indian Market. Cadila has a diverse source of revenue, even though it overtly relies on its formulations business. Also, it has successfully rolled out its first branded NDA in the year 2017-18. The margins in the pharma business are quite low in the US market, but Cadila manages reasonable margins overall. The emerging markets are poised for growth, and the business seems to be ready to cater satisfactorily to this market too.

Business score: 9/10

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Valuation analysis-

  • The stock is currently trading at a PE of 14.6
  • The stock was valued using the EPS and PE methods. The valuation was done considering the 5-year CAGR in earnings. Reasonable estimates were made and a forward PE of 22 was considered. Earnings growth was estimated at 17% resulting in a 10 year forward PEG of 1.3 which is a reasonable estimate.
  • The stock seems a bit undervalued, however, this is purely based on personal opinion and reasonable assumptions.

Valuation: 8/10

Total Score: 34/40.

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Disclaimer- The article is for educational purpose only. Nothing in this article should be interpreted as investing advice.
Disclosure- We might have recommended this stock to our advisory clients.
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