The BSE Healthcare Index has gained a whopping 50 per cent in the last eight months, but the Cadila Healthcare stock has been a relative underperformer. The stock has gained 25 per cent during this period on concerns over the US Food and Drug Administration’s observations in July last year, pertaining to a particular product.

However, in the last nine months the company’s financial performance has been strong — sales and profit have grown 21 per cent and 42 per cent, respectively.

At ₹1,529, the stock is attractively priced at less than 21 times its forward earnings for 2015-16. This implies a 30 per cent discount not just to its large-cap peers such as Sun Pharma but also to mid-cap drugmakers such as Strides Arcolab and Wockhardt. Investors with a two-to-three year investment horizon can leverage the weakness to buy the stock.

158 products in pipeline

The company’s US business, which accounts for about 40 per cent of its consolidated revenues and enjoys good margins, continues to grow at a healthy pace. With a robust pipeline of 158 products awaiting US FDA approval, Cadila is well placed to sustain strong growth in this geography.

A large proportion of the products awaiting approval are low-competition drugs such as vaccines, trans-dermal patches and inhalers. This should help the company improve its operating profit margin steadily over the next two-to-three years.

Also, price increases in the arthritis and anti-malarial drug Plaquenil in the US, due to drug shortages following cessation of supplies by IPCA Labs, have boosted Cadila’s profitability in this market.

The USFDA observation pertaining to a particular product manufactured from the Moraiya (Ahmedabad) facility had raised concerns that approval for other drugs filed from this facility might face delays.

But these fears appear unfounded as the company has already received final approval for one drug and tentative approval for two others filed from this facility recently.

The company has already responded to the FDA observation with a corrective action plan, and expects to hear from the US regulator soon.

Formulation biz

Cadila’s domestic formulations business, which grew at a sedate pace over the last few quarters due to price cuts on essential medicines, is expected to gather momentum in the upcoming quarters.

Recent launches such as its first biosimilar drug Exemptia (Adalimumab), used to treat rheumatoid arthritis, will not only give the company’s domestic sales a leg up but also open the door for launches in other emerging markets.

The company plans to launch the drug in regulated markets such as the US over the next five years. This can drive its growth over the long-term.

Related Topics