Cadila Healthcare Ltd

Get PDF

About the Company

Zydus Cadila is a leading Indian Pharmaceutical company and a fully integrated, global healthcare products manufacturer. From formulations to active pharmaceutical ingredients and animal healthcare products to wellness products, Zydus has earned a reputation amongst Indian pharmaceutical companies for providing comprehensive and complete healthcare solutions. From a humble turnover Rs. 250 crores in 1995, the group witnessed significant financial growth and registered a turnover of over Rs. 12,700 crores in FY19.

Q4FY23 Updates

Financial Results & Highlights

Detailed Results:

1. Revenue grew by 32% YoY while PAT went up by 126% YoY.
2. EBITDA for the quarter was up 75% YoY & 17% QoQ.
3. EBITDA margin for the quarter stood at 25.1% up 620 basis points YoY and 260 basis points QoQ.
4. In India geography, which comprises the formulations and consumer wellness business, accounted for 41% of the total revenues during the quarter, and grew 12% year-on-year.
5. The formulations business in the India geography sustained strong momentum and posted revenues of Rs. 12.8 billion up 11% year-on-year. Excluding revenues from COVID-related products and divested brands during Q4, the business delivered a robust growth of 12% respectively.
6. The US formulations biz US formulations business accounted for 46% of the consolidated revenues during the quarter with sales of Rs. 22.5 billion and registered a 58.3% growth sequentially mainly led by volume expansion in the base portfolio as well as seasonality.
7. Consumer wellness products business recorded revenues of Rs. 7 billion, up 11.8% year-on-year.
8. On the emerging markets front, the business posted revenues of Rs. 4.3 billion, up 30% year-on-year, excluding revenues from COVID-related products.

Investor Conference Call Highlights

1. US formulations business improved significantly during the year as the business grew sequentially every quarter on the back of volume expansion and meaningful new product launches throughout the year.
2. The balance sheet strengthened further as the company had a net cash position of Rs. 5.5 billion as on 31st March 2023 against the net cash of Rs. 0.6 billion as on 31st March, 2022.
3. The company’s quarterly revenues crossed the Rs. 50 billion mark driven by robust performance across all segments.
4. The company’s new chemical entity, the brand Lipaglyn continued to enhance the reach as it expanded the patient base by 37% during the year. 
5. On the super speciality front, the company retained its leadership position in the nephrology segment while in the oncology space, it was the fastest growing company. 
6. The management states that rural demand slowdown for the consumer wellness segment seems to be bottomed out, and recovery is now expected going forward.
7. With appropriate price increases across the portfolio undertaken over the last few quarters coupled with stabilizing inflation in key inputs except milk, the business registered improvement in gross margins, and was in line with the gross margin of Q4 FY22.
8. For the US Formulations business, growth during the quarter was driven by new launches and volume expansion in existing products. The company launched eight new products during the quarter. 
9. New launches for the quarter include Topiramate extended-release capsules, which was the first generic launch of the product in the US market.
10. During the quarter, the company filed two additional ANDAs and received 28 new product approvals, including five tentative approvals. 
11. During the quarter, the Moraiya formulations facility successfully completed the pre-approval inspection for transdermal patches by the USFDA.
12. The formulations facility located in Ahmedabad SEZ (known as SEZ 1 facility) was also inspected by the USFDA, which was a pre-approval as well as GMP inspection.
13. The company received 63 ANDA approvals during the year, the highest number of ANDA approvals received in a single financial year for the company.
14. On the NCE front, our lead molecule Saroglitazar Magnesium is currently undergoing a Phase II (b) clinical trial in NASH indication and a Phase II(b)/ III clinical trial for PBC indication for the US market. 
15. During the quarter, approval from the regulatory authority of Turkey was received to conduct trials for NASH. The molecule is also undergoing clinical trials in the US for PCOS with NAFLD indications. 
16. During the quarter, the US FDA also granted orphan drug designation status to the molecule ZYIL1 and NLRP3 inhibitor. The molecule achieved positive proof-of-concept in a Phase II clinical trial in patients with Cryopyrin Associated Periodic Syndrome known as CAPS.
17. On the vaccines front, on the global development front, the company submitted one of the dossiers of the vaccine to the WHO for the purpose of pre-qualification. The rabies vaccine has already received WHO pre-qualification.
18. The company’s wholly owned subsidiary Sentynl Therapeutics continues to work with a licensing partner Cyprium Therapeutics to complete the NDA filing of CUTX-101 targeted at Menkes disease. 
19. The management is very positive on the US formulations business, and expects growth even on the current high base in FY24.
20. The management gives the guidance for R&D spends to be at 8% – 8.5% of sales for FY24.
21. The majority of growth in US revenue is driven by the launch of new products. The management expects good value creation on the new products for the coming year.
22. The goodwill impairment done by the company, refers to the legacy business of Sentynl that was acquired by the company in 2017. Many products have been discontinued and no more products of the legacy business are continued.
23. Out of the 65 record approvals received by the company, 32 have been launched and 35 are planned to be launched this year as more approvals come-in.
24. The management states that Trokendi has faced competition, which is expected to come down. It has also launched Topiramate which is expected to add value in the next three months.

Analyst’s View:

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company’s revenue for the quarter went up by 35% and PAT went by 126%(excl.one offs). It is expecting good potential from its Saroglitazar Mg drug in the next 3 To 5 years which is said to be given a fast-track designation by the USFDA & has already started receiving higher brand recognition. The Company continues to file new products in existing emerging market countries and enter new markets through partnerships to ensure long-term, sustainable growth for the business. It remains to be seen what the future holds for the pharma industry and how the company’s foray into biosimilars pan out. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q3FY23 Updates

Financial Results & Highlights

Detailed Results:

1. Revenue grew by 20% YoY while PAT grew by 24%.
2. EBITDA for the quarter was up 27% YoY & 17% QoQ.
3. EBITDA margin for the quarter stood at 21.9%.
4. In India geography, which comprises the formulations and consumer wellness business, accounted for 40% of the total revenues during the quarter, and grew 13% year-on-year.
5. The formulations business in the India geography sustained strong momentum and posted revenues of Rs. 12.3 billion up 14% year-on-year. Excluding revenues from COVID-related products and divested brands during Q3 and for the first nine months of the current fiscal, the business delivered a robust growth of 16% and 12% respectively.
6. The US formulations biz US formulations business accounted for 46% of the consolidated revenues during the quarter with sales of Rs. 19.3 billion and registered a 13% growth sequentially mainly led by volume expansion in the base portfolio as well as seasonality.
7. Consumer wellness products business recorded revenues of Rs. 4.1 billion, up 8% year-on-year.
8. On the emerging markets front, the business posted revenues of Rs. 3.1 billion, up 15% year-on-year, excluding revenues from COVID-related products.

Investor Conference Call Highlights

1. EBITDA margin expanded in spite of a 180 basis points increase in R&D investment on a sequential basis as well as certain one-time REMS set-up costs during the quarter for an upcoming US launch.
2. The company’s first new chemical entity, Lipaglyn continued to expand its reach by growing its patient base by 45% in 2022. The brand was ranked as the 59th largest brand in the Indian pharmaceutical market during Q3 FY23, a gain of 35 positions versus Q3 FY22.
3. In the consumer wellness division, Inflation, which hurt margins over the last few quarters, is cooling down in key inputs except milk, where it still remains high. However, the company has taken appropriate price increases to counter this, the impact of which will be reflected in the next quarter. 
4. In the international division, the company launched 6 new products during the quarter. Recently, in the month of January 2023, it launched Topiramate extended-release capsules & became the first generic player to launch the product. It filed 9 additional ANDAs and received 14 new product approvals including 3 tentative approvals during the quarter. Approvals for the quarter include the receipt of final approval for the Estradiol transdermal system twice weekly. It is the first transdermal product approval from its Moraiya site.
5. In the emerging market front, the company filed its first ANDA from the newly constructed oral solids formulations manufacturing facility in Ahmedabad SEZ
6. In the international division, the company’s wide product pipeline and focused BD&L efforts lend good visibility on new products, which is critical to offset the impact of price erosions in the base portfolio and boost growth prospects in US generics. This coupled with its nimble and agile supply chain and a network of regulatory-compliant manufacturing facilities equips it to capitalize on opportunities that keep arising in the US generics markets.
7. On the innovation front –

• NCEs: initiated Phase II clinical trials in India for ZY19489, a novel potential single-dose anti-malarial drug candidate, Saroglitazar Magnesium is currently undergoing Phase II(b)/ III clinical trials for PBC indication for the US market & received approval from the Ministry of Health of Spain, Iceland, and Argentina to conduct Phase II(b)/ III clinical trials for PBC indication.
• biologics and vaccines pipeline:  initiated clinical trials in India for biosimilars of two monoclonal antibodies in the oncology space during the quarter &  also received approval from DCGI to initiate Phase II clinical trial for one of its vaccines during the quarter.
• Specialty front:wholly-owned subsidiary, Sentynl Therapeutics, launched an early access program for Nulibry to improve the global distribution network for the product and in turn, expedite delivery of life-critical medications to the patients across the world coupled with the filing of a new drug application for one of its products in the areas of metabolic disorder through 505(b)(2) route

1. The company expects  Saroglitazar to become among the top 25 brands in the coming years.
2. The company believes the undiagnosed patients of diseases like NASH & NAFLD are very large & therefore it plans to double its fibro scans.
3. The company expects R&D as a % of sales to range between 7-9% in the coming period.
4. The management expects Q4 to be higher Vs Q3.
5. The company’s current year capex of Rs.10 Bn primarily included expansion of the oral SEZ II facility, the ZTL, the transdermal area, the injectable line, a new plant for MR for WHO pre-qualification & And some API projects.
6. The company has been relatively unaffected by headwinds in the API segment since a majority of its products in the segment is for internal consumption.
7. The working capital requirements outpaced the sales growth owing to a shift in business mix towards USA & emerging markets.
8. In the Asacol HD, there is no competition currently, while REMS product has some limited competition.
9. 30 percent of its R&D spend is on clinical programs which currently doesn’t yield any direct revenues.
10. On the Transdermal side, the company filed 9 products, out of which 6 are pending approval.
11. As of 31st December, gross debt was 1816 cr. and net debt is 604 cr.
12. The newborn screening testing i.e. CUTX101 had some good progress, however, approval is still pending and because it has been licensed in the product where it is manufactured by the licensing partner so until they are able to get through with the filing and approval, it still has to wait. But the exclusivity gets only triggered after launch.
13. The management when asked about the Typhoid Conjugate vaccine & its opportunity, stated – “both the PQ vaccines which are the MR and TCB, are a part of the global immunization plans including India immunization. The volumes that have been stated in terms of requirement are significant and large and as I said, we were looking at taking about an 11 to 20 percent share of that. If we are able to be successful with the pre-qualification and meet the timelines of the tenders, it would be meaningful and profitable.”

Analyst’s View:

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country.The company reported a strong quarter with revenue & profit growth of 20%+. It is expecting good potential from its Saroglitazar Mg drug in the next 3 To 5 years which is said to be given a fast-track designation by the USFDA & has already started receiving higher brand recognition. The Company continues to file new products in existing emerging market countries and enter new markets through partnerships to ensure long-term, sustainable growth for the business. It remains to be seen what the future holds for the pharma industry and how the company’s foray into biosimilars pan out. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company’s revenue grew by 11% YoY and profits fall by 60% YoY on a consolidated basis.
2. The QoQ numbers are poor, revenue and profits falling by 38% and 94% respectively on the consolidated basis.
3. Volume growth of 5% in Q2
4. EBITDA degrew by 46.8% year-on-year to INR 163 million
5. Glucon-D has maintained its number one position with a value market share of 60.0% in the glucose powder category at a MAT September level, which is an increase of 157 basis points over the same period last year
6. The Sugar Free brand continues to maintain its leadership with a market share of 95% as per MAT September ’22 report of IQVIA.
7. 25% of our annual sales comes from rura

Investor Conference Call Highlights

1. Industry highlights
2. Consumer sentiments have gradually started to improve in urban areas, however, higher input costs have continued to impact the industry.
   • Moreover, pick-up in rural demand has been slower than urban areas, which has resulted in down-trading.
   • Rural demand which contributes 25% of the total net sales has been a subdued.
   • The management expect revival in consumer demand on completion of normal monsoon and increased government spending. They also expect good demand led by festive season in the coming quarters. The company expects to improve margin on a sequential basis, the impact of which will be partially seen in the coming quarter with full impact being captured in the quarter 4 of the financial year.
3. The management has seen some level of volatility and the increase in milk prices remains unabated and has hurt the gross margin of dairy-related products, which is what’s reflected in the company’s numbers as well.
4. The management stated some key inputs continued to remain high and have worsened the impact due to weakening INR and negatively impacted gross margins.
5. The company’s expenses has risen, which was largely driven by increase in the cost of fuel hike like coal and husk and also the statutory revision in wage rate in Northeastern belt where some of our manufacturing facilities are located.
6. The company continued our investments on advertising and marketing
7. Complan front, the management stated the health food drinks category continued to witness slowdown and similar trend was reflected for Complan as well. The category has been showing degrowth for last three quarters at an overall level as reported by Nielsen. However, with the company’s interventions in terms of sachets and pouches launched in key markets and some in the pipeline, which will help it participate in a larger buyer of HFD market.
8. The management stated green shoots are already visible in terms of increasing market share of Complan, specifically in some channels like Modern Trade, E-commerce. Brand market share stood at 4.6% in HFD category as per MAT September 2022 report of Nielsen.
9. On the sweeteners front, the management stated Sugar Free brand continued to face headwinds of higher base and registered a flattish growth during the second quarter; its direct distribution has doubled during the quarter on a sequential basis.
10. The company’s new initiatives over the last three years on Sugar Free Green and Sugarlite contribute to now 14% of the sweeteners business, thus making zydus more future-ready.
11. On the personal care front,
12. . Everyuth brand registered another quarter with a double digit growth. The brand was supported by TV and digital campaigns across its sub-segments like face wash, scrubs and peel-offs.
13. Everyuth Scrub continues to maintain its leadership position with market share of 41.8% in the facial scrub category, which is an increase of 269 basis points over the same period last year.
14. Everyuth peel-off has maintained its number one position with a market share of 75.7% in the peel-off category.
15. Everyuth brand is at a number five position with a market share of 6.5% at overall facial cleansing segment. This covers face wash, face scrub and peel-off, all the facial cleansing segments. We are taking the benefit of prolonged monsoon in some parts of the country.

1. Nycil brand registered a strong double-digit sales growth supported by TV campaigns. Nycil has maintained its number one position with a market share of 35% in prickly heat powder category, which is an increase of 47 basis points over the same period last year.
2. On the dairy and spreads category front,

• . The management stated Nutralite continued to build momentum in overall business and delivered a double-digit growth in quarter gone by.

1. Nutralite DoodhShakti dairy portfolio, which includes butter, spreads and ghee has delivered a good performance backed by increased distribution drive, festival-specific digital activations and online recipe videos endorsed by celebrity Shilpa Shetty.
2. The management stated top end of the market, both in direct distribution, even the organized state which typically ends up selling larger packs, have done better than sub stockist, super-stockist business, which caters to largely the lower pops strata in rural. And that confirms with the fact that there is being a muted offtakes across the board, which is what you were also saying. So clearly, the company sees a better offtake from the more affluent, more upper segments.
3. The management stated largely, growth thesis is based on what we already have in the market. The innovation and renovation is the key and they will keep doing that.
4. The company has target of increasing the outlets by 60%. The management stated there is a steady plan of taking it up and one new innovation or model which the company want to test, which will help the company expand our coverage without taking a relevant increase in cost to serve.
5. The management stated key roles with new outlets will be, the growth, driving growth of NPDs, which otherwise do not go through the indirect channel.
6. The sachets of Complan, which used to be about 12% to 15%, now occupy 27% of the whole category.
7. The management stated that Nutralite will be amongst the top four, five brands and will be sizable enough.
8. Directly, indirectly, a large portfolio has a currency impact. Majorly the sweeteners, it has oils, flavors, fragrances. So there’s a wide range of products which get impacted at overall level. Sweeteners in particular is direct.
9. The company has already initiated price increases more than 2% across portfolio to maintain gross margins. The gross margin contraction was largely from milk portfolio. Milk is majorly used in the Complan and Nutralite DoodhShakti.
10. The management stated the milk is the largest in RM and palm oil will be about third or fourth of total RM for the company.
11. Average realization per gram on HFD market is actually declining on the industry level.
12. face wash may have grown decently, but peel-off and scrub has grown faster and that’s why growth for the entire personal care is higher of double-digit.
13. The company has faced about 8% inflation in RM basket. Sequential basis, it is about 3.5%. About 200 basis points has happened because of COGS.
14. The management stated by fourth quarter, they should certainly be able to fully catch up on margin front.

Analyst’s View

Zydus Wellness has long been a consistent wealth creator and have been at the forefront of the health and wellness industry in India for a long time. In their current product categories, they already have a significant standing in India and are also trying to expand their resident portfolio to overseas markets. Now with the acquisition of Heinz India, they have acquired a number of sector leading brands in other categories than their own, thus significantly expanding their product portfolio. This also signals the great ambition the firm and its management possess, and their willingness to take bold steps to go further ahead on their mission path. It remains to be seen whether the benefits from the acquisition will be as good as promised, but there is a high chance of a good integration given that both operate in different categories, thus reducing chances of market share cannibalization. All in all, Zydus Wellness looks like a good investment option given their soon to be expanded portfolio, especially to those investors seeking to invest in the theme of increasing consumption and in the health and well ness industry.

Q3FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company achieved revenue growth of 29%.
2.  EBITDA is up by 47% YoY. 
3.  PAT is up by about 62% on a YoY basis.
4. The total sales volume stood at 219,898 motorcycles in this quarter, which is up by about 31% YoY basis and 8.1% higher than the Q2 FY23, further segment breakup stood as –

• Domestic volumes stood at 202,100 units, which is 34% YoY and 10% higher than Q2 FY23.
• International volumes stood at 17,789 units in Q3, marking a growth of almost about 4.4% over last year.

1. The company registered its highest-ever market share of 8.1% in all motorcycles sold and nearly 33% of all motorcycles above the 125cc segment. 
2. In the VECV segment,  total sales in Q3 have been 18,162 units, up 13.2% from 16,044 units in Q3 FY22. Revenues from operations are ₹4,603.9 crores, up 27% from ₹3,625.7 crores in Q3 FY22 while EBITDA has been ₹304.95 crores, up 26.2% from ₹241.55 crores in Q3 FY22.
3. VECV saw EBITDA margins of 6.8%. 

Investor Conference Call Highlights

1. The company made a strategic investment in Stark Future with an initial equity investment of Euros 50 million, translating to around 11% of the equity & this will be focused on EVs primarily.
2. The company launched the Super Meteor 650 & showcased it in Rider Mania, which is its Motoverse.
3. During the quarter, the company inaugurated a new CKD facility in Brazil, which is its third motorcycle assembly unit in the Americas region and our fourth across the globe coupled with signing an agreement to set up CKD units in Bangladesh and Nepal.
4. The management states that the International retail performance for the nine months of FY23 has been robust, having clocked a solid growth range from 37% to 48% across various regions.
5. The company achieved its highest-ever quarterly parts business of ₹295 crores, registering more than 20% growth over Q3 FY22.
6. The gross profit per bike has increased by about 2% versus the same quarter in the previous year expect this to improve as the commodity pressures reduce. 
7. The Hunter is a major hit as per the management as it is bringing new young customers who want agile products without compromising on the audience of the Classic.
8. The contribution from subsidiaries was meager owing to inventory buildup & reversal of EBITDA as mentioned in the previous con calls.
9. The Super Meteor 650 is on the platform of a 650 twin engine which is a cruiser & will help in giving more offerings on the 650 platforms for its 350 existing consumers who want to do an upgrade. 
10. The management expects the supply of Hunter 350 by 25-30% from the current run rate.
11. The company is not facing any major supply chain issues.
12. The company has enough capacity to service the demand for the near future, & any future increase will be through the debottlenecking route which is less capex intensive..
13. The company is cautiously optimistic about the demand for royal enfield owing to the uncertain macro environment.
14. In the international market, North America, Europe, and APAC region were its top focus, but Now LATAM is also added to this list post-launch of its CKD facility.
15. It is not expanding in the Indonesian market currently owing to some local content usage quota.

Analyst’s View

Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. The company delivered a great quarter achieving revenue & profit growth of 47% & 62% The company’s recent launch- Hunter 350 motorcycle at an accessible price point has received good responses from the customers & overall market. It remains interesting to see how the company expands its global footprint with its all-new products and whether it can replicate its previous success. Nonetheless, given its resilient performance in its various segments and the strong brand and industry position of the company, Eicher Motors remains a critical stock to watch out for every auto sector investor.

Q2FY23 Updates

Financial Results & Highlights

‘

Detailed Results:

1. The company achieved the highest revenue of  ₹3,519 crores for Q2, up by about 56.4% from ₹2,250 crores last year.
2. EBITDA is about ₹822crores, up by 75% YoY, against ₹470 crores last year.
3. . PAT stood at about ₹657 crores, which is the highest ever for EML, up by about 76% on YoY basis as against about ₹373 crores reported last year.
4. Company’s market share on standalone basis stood at 30% Vs 26% YoY.
5. Margins for H1 stood at 24% Vs 19% YoY.
6. VECV saw margins improve from 3.9% to 5.8% YoY in H1 & Revenue increased by 70% YoY.

Investor Conference Call Highlights

1. The company started this quarter with the launch of the all-new Hunter 350 on its J-Series engine platform in Bangkok recently it also launched Super Meteor 650 on the Twin platform at EICMA 2022 in Italy.
2. The company’s market share climbed up to 7% in the Americas as of now and 9% in APAC and about 10% in the EMEA region.
3. The company has 710 multi-brand outlets and about 175 exclusive stores outside India.
4. The CV industry is reporting a good show with industry for >3.5 tons has grown by 68% And the momentum continued even in October where the growth has been 15%.
5. The management is confident of seeing a new peak in the CV industry in the coming two-three years.
6. The company believes there exist several headwinds, especially in exports because of the global situation, especially the foreign exchange situation in some of the South Asian markets like Bangladesh, Nepal, and Sri Lanka.
7. The company’s market share in the heavy-duty trucks segment combined with Eicher and Volvo trucks is at around 8.2%.
8. Market share in buses & light, medium duty trucks stands at 24-25% & 28-30% respectively.
9. The company introduced electric buses & executed 40 electric bus orders for Chandigarh city.
10. The company explains the motive behind Hunter was to develop a product for those consumers who love the brand Royal Enfield and wanted to associate with the brand Royal Enfield but wanted a motorcycle, which is a bit more accessible, slightly lower in weight compared to the motorcycles like Classic 350 and Bullet 650.
11. Hunter had an 18.2% first-time buyer rate Vs the previous average of 15% for Royal Enfield & is being adopted more by younger audiences.
12. The management expects the margins in Hunter to improve owing to commodity prices softening, value engineering activity & possible price hikes if the commodity doesn’t ease.
13. The company expects good performance in the CV industry due to the pent-up replacement cycle coupled with the need for more productivity & cost reduction.
14. The management doesn’t anticipate any problem in comfortably transitioning into OBD-IIA norms.
15. The management expects the impact of commodity deflation to flow in Q3.
16. The company doesn’t feel the production is a constraint due to ample capacity coupled with semi-conductor shortages easing off.
17. The company’s pricing strategy while introducing a new product is market-focused rather than cost-plus-focused.
18. The management explains that the company was a one-platform company because UC was the only platform but, now it has two platforms in the form of J-Series and P.

Analyst’s View

Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. The company delivered a great quarter achieving highest revenue of Rs 3,519 Cr, and increasing its revenue by 56% YoY. The company recent launched of Hunter 350 motorcycle at an accessible price point has received good response from journalists all across the world largely due to lightweight & easy to ride features. It remain interesting to see how company expand its global footprints with its all-new products and whether it can replicates the success its pervious success. Nonetheless, given its resilient performance in its various segments and the strong brand and industry position of the company, Eicher Motors remains a critical stock to watch out for every auto sector investor.

Q1FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a good quarter with a 17% consolidated revenue growth YoY and a PAT rise of 5%.
2. The Market shares for the company’s brands as on June 2022 were:

1. Glucon-D – 60.4%
2. Complan – 4.8%
3. Sugar Free – 95.5%
4. Nycil – 34.2%
5. Everyuth (Facial Cleansing) – 6.6%
6. Everyuth (Scrub) – 41.8%
7. Everyuth (Peel-off) – 76%
8. With the good onset of summer, Nycil brand witnessed a strong comeback and registered a double-digit growth.
9. Glucon-D witnessed double-digit growth led by revival in the market demand, which was absent during last two consecutive summers due to the pandemic.
10. Plan to enhance distribution infra to 3Mn+ reach and 1 Mn direct coverage over the next three years.
11. E-commerce continued good growth, contributing to 6.5% of the sales.
12. The company faced double digit inflation in most of its raw materials during the quarter.

Conference Call Highlights:

1. Inflation on palm oil and packing materials eased out during the first quarter.
2. The gross margin has improved 352 QoQ bps due to price increases, cost improvement measures and product mix. On YoY basis it fell by 70 bps due to inflation.
3. The company has ceased the operations of the Sitarganj plant to have leaner operations which are closer to consumers. The company has accounted Rs.29 million one-off expenditures for the same.
4. This quarter, the company saw products crossing 2.5 million stores with equal split between urban and rural.
5. The company’s largest brand, Glucon-D crossed 60% market share for the first time in several years at an MAT level as reported by Nielson.
6. Glucon-D market demand was supported by strong media coverage with Pankaj Tripathi as the endorser to drive daily relevance for energy drinks synergized with consumer activisions.
7. On Complan front, health food drinks category saw a continued slowdown, which is further compounded by down trading to LUPs and lower-priced pouch packs.
8. On sweeteners front, the company continued to promote Sugar Free Green through Katrina Kaif along with various social media digital initiatives for Sugar Free brand.
9. Sugar Free brand did not see any growth during Q1 due to high base of Covid wave 2, which was led by high diabetic consumption.
10. Sugar Free brand witnessed healthy growth in distribution expanding to 497,000 outlets, which is an increase of 26,000 YoY.
11. Everyuth brand witnessed another strong double-digit quarter mainly due to TV and digital campaigns across its sub-segments.
12. Distribution of Everyuth products increased to 6.8 lac outlets from 6 lac outlets the previous year.
13. Nycil brand witnessed a strong comeback during the quarter and registered double digit growth. It maintained its No.1 position and improved availability by 16.5% 1.67 Mn outlets.
14. Nutralite brand registered double-digit growth during the quarter with Nutralite DoodhShakti dairy portfolio gaining good traction. The brand is also expanding presence of ghee into institutional channels.
15. For Complan, management is focused on growing and regaining market share through the nutrition route rather than competing in the pricing.
16. The management believes that for inflation pressures, the worst times have passed away with prices easing a bit.
17. The management gives a guidance of 20% operating margins for the year.
18. The management does not currently have any plans for inorganic growth and is focused on the growth opportunity that its brands have.

Analyst’s View:

Zydus Wellness has long been a consistent wealth creator and has been at the forefront of the health and wellness industry in India for a long time. In their current product categories, they already have a significant standing in India and are also trying to expand their brands in international markets. The company has solid brands in categories with huge potential in both Global and International markets. All in all, Zydus Wellness looks like a good investment option given that they are leaders in most of their markets, especially to those investors seeking to invest in the theme of increasing consumption and in the health and wellness industry.

Q4FY22 Updates

Financial Results & Highlights

*Contains Gain on disposal of discontinued operations.

Detailed Results:

1. Consolidated revenues were up with 8% YoY growth.
2. EBIDTA margins for Q4 stood at 22.3% while growth was 1% YoY.
3. Net Debt stood at Rs.-57 Cr.
4. Capex for the quarter stood at Rs.266.8 Cr. 
5. The Board approved buy-back of up to Rs. 7,500 mn at Rs. 650 per equity share (90% premium to the closing share price of 19th May 2022).
6. The company launched Desidustat (OxemiaTM) in India for the treatment of anemia in patients with Chronic Kidney Disease (CKD). 
7. Q4 Revenue mix includes –

1. US Formulations – 38%
2. Consumer wellness – 17%
3. Indian formulations – 31%
4. Emerging markets – 7%

Investor Conference Call Highlights

1. The company’s formulations biz in Q4 saw branded biz (Excluding sales of COVID-related products) grow by 19% YoY.
2. The management states that the company gained market share in its core therapies of anti-diabetic, cardiovascular & gynaecology during the quarter on a YoY basis, On the super speciality front retained its leadership position in the nephrology segment & the oncology space, the company remained one of the fastest growing companies in India.
3. The consumer wellness biz saw sales growth of 6% YoY in Q4.
4. The US formulations biz saw sales degrowth of 4% YoY in Q4.
5. The company launched 4 new products in the US taking the cumulative number of new product launches for the year to 14 while the company received final approval for 5 new products during the quarter taking the cumulative number of approvals for the year to 28.
6. The company recorded sales growth of 10% YoY in the emerging markets segment while the growth excluding covid-related products stood at 29%.
7. The management states that the Board has approved the proposal for the Buyback of shares at an attractive value to reward the shareholders.
8. The company was able to maintain GPM despite high inflation due to its business mix, foreign exchange benefits, stockings of inventory & price hikes in its Zydus wellness division.
9. The company is confident of maintaining 20% plus EBIDTA margins in the coming year.
10. The growth in the API segment remained largely subdued due to the high base because of Covid, but the management expects the growth to come back.
11. The management expects its US biz to witness a price erosion in the range of mid to high single-digits & grow in single digits for FY23.
12. The company took up Nulibry-product as a part of its philosophy of working on therapies and areas where there are unmet medical needs.
13. The management is guiding for R&D as % of sales to be around 8%.
14. The company is looking to use its strong cash position on the balance sheet post sale of its pet care division to grow its speciality biz & do acquisitions of brands as a part of its expansion strategy.

Analyst’s View:

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the branded business while the consumer wellness and India Business were mostly flat YoY. The company is seeing demand decline for COVID-related drugs but the demand scenario for the in-house developed vaccine remains stable. It is also expecting good potential from its Saroglitazar Mg drug in the next 3 To 5 years which is said to be given a fast-track designation by the USFDA. The company is also looking to concentrate on biosimilars and is said to have enough capacity for biosimilar demand for the next 2-3 years. It remains to be seen what the future holds for the pharma industry and how will the company’s foray into biosimilars pan out. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing speciality product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q3FY22 Updates

Financial Results & Highlights

*Contains Gain on disposal of discontinued operations.

Detailed Results:

1. Consolidated revenues were up with 1.5% YoY growth. Profit has risen -5.1%YoY in Q3.
2. The EBITDA for the quarter was at Rs 753 Cr which was down -2% YoY.
3. India revenues were at Rs 1461 Cr in Q3 which was down -1% YoY. Human formulations business declined -2% YoY while consumer wellness business grew 2% YoY.
4. US formulations business was at Rs 1504 Cr. Cadila filed 12 new ANDAs and got 9 new product approvals from the USFDA.
5. Cadila received an order from Government of India to supply 1 crore doses of vaccine for which the supplies of the order have already started.
6. A partnership with Enzychem Lifesciences is expected to lead to manufacturing of over 80 million doses of the vaccine in 2022 which will be supplied in South Korea, Latin America and Asia.
7. The company submitted an NDA of Desidustat to DCGI for treatment of anemia in patients with CKD both on Dialysis and not on Dialysis. This molecule will further consolidate the company’s leadership position in the Indian nephrology market.
8. Cadila completed Phase 3 CTs for one mAb and received the permission from DGCI to initiate Phase 3 CTs for one mAB.
9. The company received regulatory permission to initiate Phase 2(a) CTs in patients with CAPS in Australia.

Investor Conference Call Highlights

1. Due to the reduced need for Covid related medicines in India, Covid related opportunistic portfolio recorded a decline in the revenues during the quarter on a sequential and YoY basis.
2. Despite the reduction in mesalamine revenues in the U.S. and the decline in Covid related revenues in the quarter, various cost optimization and efficiency enhancement initiatives helped the company contain the EBITDA margin declined by only 50 basis points.
3. The branded business growth was 17% YoY. The growth was driven by volume expansion in the existing products and key new product launches made over the last 12 months and improved realizations.
4. During the quarter, Lipaglyn catapulted 183 ranks up to 92nd rank amongst the top 100 brands in the Indian pharma market.
5. The company continues to maintain a leadership position on the super-specialty front in the nephrology segment. In the oncology space, it is the fastest-growing company in India.
6. Price hikes were taken in key brands of the Consumer Wellness segment which helped protect gross margins.
7. Consumer Wellness posted flattish growth of 2% YoY due to a high base during the previous year and due to reduced inventory both internally and in trade channels.
8. The company received 9 new product approvals in the US formulations business, including 5 tentative approvals, and launched 5 new products during the quarter.
9. New launches and approvals included Nelarabine injection for which the company is granted 180 days of exclusivity. This product was launched immediately upon approval.
10. The company filed 12 ANDAs during the quarter and amongst them is the first drug-device combination product on the NCE-1 date. Apart from this, 2 products are single-source products and 2 others are limited competition products.
11. The management states that the zero-based budgeting approach will lead to margin improvement during the current calendar year.
12. The company has been selected as the Best Pharma Company to Work For in the large company category for the year 2021 in the Employee Choice Awards by AmbitionBox.
13. The company has started the supplies of vaccines of ZyCov-D to the government of India.
14. The company has entered into an agreement with Shilpa America Limited for the production and supply of the drug substance of ZyCov-D, from their manufacturing facility which shall begin in the current month helping the company improve demand and supply.
15. The company on the global front entered into a manufacturing license and technology transfer agreement for the vaccine with Enzychem Lifesciences of South Korea. The partnership will lead to manufacturing over 80 million doses of the DNA vaccine in the year 2022.
16. Saroglitazar has been given an orphan drug and a fast-track designation by the US FDA.
17. The company concluded a pre-NDA meeting with the FDA for 2 more products in the area of metabolic disorder and also submitted a pre-IND request for one more product in the orphan drug space.
18. The 2-dose vaccine enrollment has been completed. By end of the month, the company will have all the data to file with the regulators. This is the phase 3 trial done for ages 12 and above.
19. The company has a profit-sharing agreement with Enzychem Lifesciences of South Korea.
20. The management states that everything is on track for desidustat and estimates a launch in April.
21. Last year the company had launched Ujvira, which is KADCYLA. It has crossed the number of prescriptions compared to the nearest competitor turning out to be a very successful launch.
22. The management outlook for US business gross margins remains flattish due to price erosion whereas is positive for India business.
23. The management maintains its guideline for R&D expenses at 8% of revenue.
24. The management believes that desidustat has the potential to become a 250 crore-plus franchise for the company over the next three years.
25. On the biosimilar side, the company has received approval in Russia for PEG GCSF and has started supplies for that.
26. The company is waiting for approval of 2 critical biosimilar molecules in Latin America in the next 3 months. After the approval, the company will be able to participate in large Latin American government contracts.
27. Currently the company has 12 biosimilars in India and has enough capacity for the next 2 to 3 years. The annualized revenues of this are currently 600 crores.
28. The management is confident for US revenues to cross the 1-billion-dollar mark in FY ’24.

Analyst’s View:

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the branded business while the consumer wellness and India Business were mostly flat YoY. The company is seeing demand decline for COVID-related drugs but the demand scenario for the in-house developed vaccine remains stable. It is also expecting good potential from its Saroglitazar Mg drug in the next 3 To 5 years which is said to be given a fast-track designation by the USFDA. The company is also looking to concentrate on biosimilars and is said to have enough capacity for biosimilar demand for the next 2-3 years. It remains to be seen what the future holds for the pharma industry and how will the company’s foray into biosimilars pan out. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q3FY21 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs 132 Cr which is for premium on NCDs purchased by Group.

** Includes an exceptional item of Rs 187.5 Cr which is provision for impairment in Zydus International Private Limited, Ireland.

*** Includes an exceptional item of Rs 311 Cr.

Detailed Results

1. Consolidated revenues were up with 4.5% YoY growth. Profit has risen 41%YoY in Q3.
2. The EBITDA for the quarter was at Rs 807 Cr which was up 16% YoY.
3. India revenues were at Rs 1643 Cr in Q3 which was up 20% YoY. Human formulations business grew 20% YoY while consumer wellness business grew 16% YoY and animal health business grew 17% YoY.
4. US formulations business was at Rs 1603 Cr. Cadila filed 10 new ANDAs and got 9 new product approvals from the USFDA.
5. Cadila launched the oral anti-diabetic agent, Dapaglyn (Dapagliflozin) in India for patients suffering from Chronic Obstructive Pulmonary Disorder (COPD) in Q3. It also launched Forglyn, India’s first pressurised metered dose inhaler with a combination of Long Acting Muscarinic Antagonist (LAMA) and long acting beta agonist (LABA).
6. The company has gotten the approval for the Saroglitazar Mg drug to be used in the treatment Non Alcoholic Fatty Liver Disease (NAFLD). It is also used for Non-Alcoholic Steatohepatitis (NASH).
7. The company also filed IND for the NLRP3 inflammasome inhibitor, ZYIL1 and upon receiving the approval started Phase | clinical trials during the quarter.
8. In Q3, the company received approvals to start Phase III clinical trials of Pegylated Interferon Alpha-2b in India and the approval to start Phase III clinical trials of its vaccine ZyCoV-D. The trials for the vaccine are underway and will be tested across 60 locations with 30,000 volunteers in India.

Investor Conference Call Highlights

1. Cadila’s EBITDA margin improved during the quarter to 21.3% which was an improvement of 210 bps YoY.
2. Emerging Markets business grew by 11% YoY to Rs 293 Cr.
3. Cadila gained market share in pain management, anti-infectives and the antidiabetic portfolio during Q3 FY ’21.
4. The company launched 7 new products in Q3 which includes the launch of doxorubicin liposomal injection, which is the first complex injectable developed in-house.
5. In CY2020, Cadila received approvals for 38 new products, which is the second highest number of ANDA approvals received by any generic company across the world.
6. The commercial production of the ZyCoV-D vaccine is expected to start in Q1FY22. The designated capacity of the plant is equivalent to 120 million doses.
7. On the biologics front, Cadila received marketing authorization for 1 biosimilar in India and completed preclinical toxicity study for another biosimilar during the quarter.
8. It also submitted an NDA for one product from the specialty portfolio.
9. It completed a Phase II/III trial for tetanus Diptheria, the TD vaccine in India during the quarter.
10. The company has not seen any stock return for Remdesivir and is seeing healthy demand for the drug even in export markets.
11. Given the high prevalence of NAFLD and NASH in India, the management has high expectations from the Saroglitazar Mg drug. It has stated that this drug can become the largest selling molecule in Zydus in the next 3 to 5 years.
12. The company is expecting to enter USA with the Saroglitazar Mg drug for PBC in 2023 and NASH in 2025. The company has gotten fast track approval for PBC usage and hopes to get the same for NASH.
13. The opportunity size in PBC is around $10 billion by 2026 and the NASH market size is 2-3 times it.
14. The company will maintain 8-9% of R&D spending going forward.
15. Overall capex in the vaccine will be at Rs 150-250 Cr. The vaccine will be administered in 3 doses.
16. The company has seen strong demand for its vaccine from export markets. Almost all countries are accepting Phase II trial data for market authorizations. Some will do local studies if necessary.
17. US revenues saw a QoQ decline due to delay in some orders and YoY inventory correction. The management is expecting Q4 revenues to be at $215-220 million in USA.
18. The management states that the USA business has not seen any curtailment of cost and it remains stable at current levels. The spending on India formulations is at 80-85% of normal spending levels and it should rise higher in FY22. But the management expects spending levels to stay below pre-covid levels.
19. The management maintains that all 30,000 volunteers will get the first dose of the COVID vaccine by end of Feb.
20. The management doesn’t envisage any additional tax outgo because of the proposed change in goodwill depreciation till FY24 or FY25.
21. The company sees an opportunity in the range of INR 40 crores to INR 50 crores in dapagliflozin. It also has one monoclonal therapy coming which should see sales of Rs 40-50 Cr in a year.
22. It is also looking to launch a home test kit for COVID.
23. The company is also looking for appropriate CMOs to additionally produce 50 million to 70 million doses of the COVID vaccine. The in-house manufacturing capacity should be ready by April.
24. The management expects 5-10% growth in US business in FY22.
25. The management states that the Saroglitazar Mg drug can easily turn into a Rs 250 Cr molecule for Cadila in India. It is very confident of gaining approval for PBC for the drug in India, USA and Mexico post the successful Phase III trial which is expected to start in March.
26. The company has completed enrolment for Desidustat in India and the commercial potential for the drug is Rs 100+ Cr in India alone. The process for approval in China for the drug is also going smoothly. Cadila has started a trial on chemotherapy-induced anemia in USA for this drug and it sees this patient set as a better value driver in the U.S. market.
27. The company sees a patient size of 1 million in India for Saroglitazar Mg with >10% YoY growth in this molecule.
28. Annual effective tax rate is expected to be at 20-21% for FY21 and FY22.
29. The company is planning for 40-plus new launches in USA in FY22 with 8-10 of them being high value molecules.
30. Around 40-50% of R&D spend in on generics.
31. Capex for FY21 and FY22 should be at Rs 700-800 Cr.
32. Cadila is also working on the next-generation of the pneumococcal vaccine, which covers the largest number of screens. Without COVID, the management expects the vaccine portfolio to reach $125 million in revenues by FY24,25.
33. The Moraiya issue is still pending and there have not been any updates in the situation.
34. The opportunity size for the COVID vaccine shall remain steady as any vaccination drive needs at least 3-5 years to be completed.
35. The management states that Cadila can see prequalification and tender offers in vaccines for WHO from FY23 onwards. It will be targeting a 10-12% market share on its 3 approved vaccines.
36. The biggest chunk in the vaccine business is expected to come from exports.
37. The management expects to add almost 1% margin improvement with its ongoing cost savings initiatives.
38. The company reduced almost Rs 200 Cr of net debt in Q3. Net debt now stands at Rs 3800 Cr.

Analyst’s View

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the India business while the US business has seen marginal decline QoQ. The company is on track with its Phase III trials for its COVID vaccine and should have its 120 million doses capacity by April. It is also expecting good potential from its Saroglitazar Mg drug in the next 3-5 years. It remains to be seen what the future holds for the pharma industry with the race to COVID-19 vaccine intensifying. The company also has to resolve the Moraiya issue pending which can delay its plans for the expansion in the transdermal space. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q2FY21 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs 132 Cr which is for premium on NCDs purchased by Group.

** Includes an exceptional item of Rs 268 Cr which is an impairment charge on ‘Levorphanol’.

*** Includes an exceptional item of Rs 305 Cr.

Detailed Results

1. Consolidated revenues were up with 13% YoY growth. Profit has risen over 3 times YoY in Q2 due to exceptional items recognized in both Q2FY21 & Q2FY20.
2. The EBITDA for the quarter was at Rs 863 Cr which was up 36% YoY with EBITDA margins of 22.6%, an improvement of 370 bps YoY.
3. Consolidated PAT excluding exceptional items was up 73% YoY.
4. The company reduced net debt by Rs 2709 Cr in H1, which is a 40% reduction since March 2020. Net Debt as of 30^th Sep 2020 stands at Rs 4031 Cr.
5. India revenues were at Rs 1583 Cr in Q1 which was up 11% YoY. The Company gained market share in Gynaecology, Pain management, Anti-Infectives, Anti-Diabetic, and Hormones portfolio in Q2 vs last year. Animal Health business saw revenues of Rs 161 Cr in Q2 which is a growth of 20% YoY.
6. US revenues were up 18% YoY to Rs 1709 Cr. The company received approval for 10 new products (incl. 2 tentative approvals) and filed 5 additional ANDAs in Q2.
7. Cadila received final approval for ANDA for Liposomal Doxorubicin injection in Q2.
8. The Phase II clinical trials of Desidustat in the management of COVID 19 are underway in Mexico.
9. The Company has also completed Phase II clinical trials of Pegylated Interferon Alpha-2b in India for management of COVID 19.
10. The Adaptive Phase I/II clinical trials are underway for the Company’s lead vaccine candidate ZyCoV-D.

Investor Conference Call Highlights

1. The US generics business grew by 21% YoY driven by volume expansion.
2. The company’s emerging markets business grew by 8% YoY and saw sales of Rs 236 Cr. IN constant currency terms, this business grew 12% YoY.
3. The India Consumer Wellness business grew by 9.3% YoY.
4. The company completed QIP for Rs 1000 Cr in Q2 which was oversubscribed 3 times. Proceeds of the issue were used for redemption of nonconvertible debentures leverage to the balance sheet.
5. US formulations business remains the largest contributor to the consolidated revenues with a 45% share in total revenues in Q2.
6. API business saw sales of Rs 160 Cr and growth of 52% YoY.
7. The company is about to complete preclinical development for ZYIL 1, a small molecule NCE positioned for the management of critically ill COVID-19 patients.
8. The company has received regulatory permissions in India to conduct a Phase II clinical trial of adalimumab for COVID-19.
9. The company completed Phase I trials for the Hepatitis E vaccine and has received regulatory permission to conduct preclinical tox studies for one more vaccine during the quarter.
10. The management attributes the growth in India’s business in Q2 to the growth in the chronic portfolio.
11. The company is still not completely back in terms of its marketing activities and there can be some increase in marketing going forward. But overall, fixed expenses are back to normal.
12. The company continues to hold a good market share in Lialda due to the complexity of molecules and the sourcing of materials.
13. Pricing in the base business is expected to remain stable at current levels.
14. Other than Saroglitazar, the company hopes to maintain R&D at 7-8% of revenues in FY21.
15. Generic growth in India has been muted in Q2.
16. The animal health business has done well due to the strong brand presence, customer outreach, and the revival of the rural economy in India. The company also saw better margins in this business due to a favourable product mix.
17. The management expects APIs to grow >10% going forward.
18. The company will not receive any export benefits due to the discontinuation of the previous export incentive scheme and it is waiting for the details of the new scheme to gauge how the incentives will come in for it.
19. There are a number of Remdesivir providers in India but Cadila remains the lowest-priced provider in the market. The company is still building for full capacity and aims to produce as much as it can sell.
20. The company’s COVID vaccine is expected to come out by April if Phase III trials are completed in time.
21. The management has stated that compared to the Pfizer or any other vaccine, the company COVID vaccine has a few advantages like:
    1. It doesn’t use an infectious agent as a platform for delivery so safety is enhanced.
    2. DNA vaccines have a very clear pathway that lies within WHO & USFDA guidelines.
    3. It has a highly scalable platform which makes it easy to build for scale and find third-party manufacturers.
    4. The product is stable at 2-8 degrees Celsius which is very convenient in terms of cold chain logistics and shelf life.
    5. It has an intradermal application which should be a much easier administration.
22. The company has increased its capacity for DNA vaccines by 70%. This whole new capacity can be used to make only 1 vaccine at a time.
23. The hasn’t been any shortage in demand for Remdesivir despite the WHO comments as the USFDA has shifted it to first-line treatment now instead of emergency and this drug remains the only line of treatment for moderate to severe patients.
24. The competition for Lialda is low as the majority of the mesalamine franchisees are very difficult to develop and these are very complex products to continuously manufacture.
25. The competition in the Tamiflu space is intense and the company stands ready for large quantities as demand is expected to be high due to COVID-19.
26. The management believes that the company has outperformed the market in all operating segments in H1.
27. The management believes that with the company’s strong R&D, it can easily repurpose or bring new introductions whenever needed in the COVID portfolio when demand for it drops in the future.
28. The company has set up an R&D engine that will be churning out first-in-India launches at affordable prices which should ensure adequate momentum for many years to come.
29. The acute portfolio is the one where the company is struggling as the market is slow and the company is not a big player in this space.
30. The management expects to see the current growth momentum for the domestic business to last at least 2 more quarters.
31. The management has stated that the company needs at least 3-3.5 years to become a sizeable influence of $150-200 million in the injectables space.
32. The company’s transdermal approvals are contingent on its Moraiya warning letter getting resolved. The company expects to see 5-6 approvals in this space. Once the approval is done, the company can set up this business in FY22 and see a good scale-up in the next 2.5 years.
33. In the primary biliary cholangitis space, the company expects its drug to hit the markets in 2023 or 2024. This space has a big market size of a few billion dollars and has no approved products.
34. The management has stated that it expects to keep the COVID-19 vaccine affordable as it is very scalable and can be made in high quantities easily.
35. The company aims to file a total of 30-35 NDAs in FY21 and 40-45 NDAs in FY22

Analyst’s View

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the US generic business and see a resurgence in the India business, both of which are the biggest revenue generators for the company. The company is expected to benefit greatly from its targeted portfolio of products and services for COVID-19 especially from its COVID-19 vaccine which is touted to be more scalable and have better shelf life than the vaccine announced by Pfizer. It also has massive potential in the injectables business where the company is looking to add a number of its products in the near future. It remains to be seen what the future holds for the pharma industry with the race to COVID-19 vaccine intensifying. The company also has to resolve the Moraiya issue pending which can delay its plans for the expansion in the transdermal space. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.

Q1FY21 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs 52 Cr.

Detailed Results

1. 1. Consolidated revenues were up with only 4.06% YoY growth. Profit has risen 49% YoY in Q1.
   2. The EBITDA for the quarter was at Rs 815 Cr with EBITDA margins of 22.4%, an improvement of 360 bps YoY.
   3. India revenues were at Rs 1486 Cr in Q1.
   4. US revenues were up 19% YoY to Rs 1623 Cr. The company received 12 ANDA approvals and 4 are tentative.
   5. The Rest of the World business grew 8% YoY to Rs 238 Cr in Q1.
   6. The company has gotten USFDA approval to initiate clinical trials of Desidustat, its Investigational New Drug targeted at treating anaemia in cancer patients, receiving chemotherapy.
   7. The company received approvals from COFEPRIS of Mexico for clinical trials of Pegylated Interferon Alpha 2b in COVID 19 patients. At present, clinical trials in India and Mexico are underway with Pegylated Interferon alpha-2b.
   8. The company announced the commencement of the Adaptive Phase I/II clinical trials of ZYCoV-D, the preventive vaccine for COVID 19 in India.

Investor Conference Call Highlights

1. The US generics business grew 25% YoY on the back of volume expansion and new product introductions.
2. The company gained market share in gynaecology, pain management, and antidiabetic portfolios during Q1.
3. In India human health business, sales were at Rs 532 Cr which was 12% down YoY, and profits were at Rs 89 Cr which was up 11% YoY.
4. Animal health business in India saw modest revenue growth of 4% YoY to Rs 125 Cr.
5. The company launched 3 new products during the quarter.
6. API business saw sales of Rs 131 Cr which was up 89% YoY.
7. In the complex generics space, the company has 14 in-licensed brands with a brand value above Rs 1500 Cr. The company has 10 more licensing deals that are under discussion with near-term commercialization opportunities.
8. The management is guiding for U.S. generics price erosion of <5%.
9. In the next 2-3 years, the company is looking to have at least 20+ injectable products that are expected to have a good value proposition in terms of limited competition and complexity.
10. R&D spend is guided to stay within 7-8% of sales and it will be divided into shares with the largest being for generic portfolio (60%) followed by NCEs, biologics, and vaccines. There might be an increase in the allocation towards NCEs resulting in a fall of generic R&D share to 50%.
11. Gross margins have improved in Q1 due to improved product mix and YoY growth in US business.
12. The net debt was reduced by Rs 1500 Cr in Q1. The management believes that another Rs 1000 Cr of net debt reduction will take place in FY21.
13. The company is one of the few ones to offer an entire portfolio of products targeting COVID-19. In diagnostics, the company currently does 2.5 to 3 lakh tests commercially every month. On the vaccine front, it is committed to being able to produce 100 million or 10 crore doses annually. The company has also launched Remdac which is the cheapest available Remdesivir brand in India priced at Rs 2800 per 100ml.
14. The company is implementing digital technologies in its operations and front end to reduce costs and improve productivity. It is also adopting zero-based budgeting to identify potential areas for cost improvements.
15. The company is starting Phase II trials for its COVID-19 vaccine where it is looking to enroll 1000 healthy volunteers. It expects to complete this phase by October.
16. The reduction in net debt was afforded by better receivables management by the company and postponement of some Capex programs. The company has also set up a cash management office to manage our daily cash flows and everything as part of the response to the COVID.
17. The company did see demand persisting in hydroxychloquine but it is still small at less than Rs 100 Cr in Q1.
18. The company is committed to go to the FDA for its next clinical trial protocol for NASH and to take PBC forward after successful completion of the Phase II enrolment.
19. The management has stated that the trial expenses will all be reflected in R&D.
20. The main seasonality in the USA business is expected to be from oseltamivir capsules and suspension which is highly seasonal in nature. The company has guided for 5-10% growth in US generics in FY21.
21. The company is waiting on clinical approvals from Russia, Columbia, and Mexico which are expected to come in the next 6 months and will result in meaningful sales in FY22.
22. For the biologics, the company is aiming for markets in LATAM, North Africa, the Middle East, and Southeast Asia. It will focus on launching biologic in developed countries in the next phase.
23. In the first phase of biologics, the company is focussing on products like PEG-G-CSF, trastuzumab, bevacizumab, adalimumab, rituximab, follicle-stimulating hormone, and parathyroid hormone.
24. The management believes that the injectables portfolio to be at $150-200 million by FY24.
25. The main reason for the company’s confidence in being able to provide the cheapest Remdesivir variant in India is the fact that it is completely backward integrated with even the APIs being made in-house.
26. The management expects the momentum in API sales to continue going forward.
27. The Phase III trial for the COVID-19 vaccine is expected to have around 5000-10000 patients in the study.
28. The company is working with both the injectable and device delivery mechanism for this vaccine.
29. The management believes that the company has sufficient capacity for the next 4-5 years.

Analyst’s View

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the US generic business and stay flat in the India business, both of which are the biggest revenue generators for the company. The company is expected to benefit greatly from its targeted portfolio of products and services for COVID-19 especially from RemDac which is currently the cheapest Remdesivir drug available in India. It also has massive potential in the injectables business where the company is looking to add a number of its products in the near future. It remains to be seen what the future holds for the pharma industry with the race to COVID-19 vaccine intensifying. The company also has FDA audits pending which can prove to be a downer if any negative observations are made during those audits. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for every pharma investor.

Q4FY20 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs 52 Cr.

**Includes an exceptional item of Rs 364 Cr.

Detailed Results

1. 1. Consolidated revenues were flat with only 0.66% YoY growth. Profit has fallen 13.6% YoY in Q4.
   2. FY20 performance followed a similar pattern with revenues rising 7.5% YoY while profits fell 36.5% YoY.
   3. The EBITDA for the quarter was up 13% QoQ.
   4. The company also filed 30 ANDAs in FY20 bringing the current total to 390. The company also got 28 new product approvals from USFDA in the year.
   5. In India, the company has launched an oral anti-diabetic agent Vinglyn and Vinglyn M. The company has stated that Vinglyn is one of the most affordable brands of Vildagliptin for diabetic patients in India.
   6. The company has received approval for Saroglitazar Mg in Non-alcoholic Steatohepatitis from the Drug Controller General of India. It has been approved for use in India to treat diabetic dyslipidemia and hypertriglyceridemia in patients with type-2 diabetes not controlled by statins alone. The drug also received approval to treat Type2 Diabetes Mellitus in India.
   7. The company got marketing approval from DGCI for a Hepatitis B vaccine. The company completed Phase I clinical trials for Inactivated Hepatitis A Vaccine while Phase I clinical trials for its Recombinant Hepatitis E Vaccine is currently in progress.
   8. The company received marketing approval for Twinrab from DGCI. It is a novel biologic to be used in combination with rabies vaccine for rabies post-exposure prophylaxis.
   9. The company is working on a DNA vaccine for COVID-19.
   10. The company recently signed a non-exclusive licensing agreement with Gilead Sciences Inc., for the manufacturing and marketing of Remdesivir, the investigational drug, in 127 countries.

Investor Conference Call Highlights

1. Excluding the impact of COVID-19-related disruptions, consolidated revenues would have grown by 10% on a quarter-on-quarter basis. Consolidated EBITDA grew to INR 7.91 billion, up 13% on a sequential basis, adding a delta of INR 935 million over the previous quarter.
2. EBITDA margins improved by 190 bps QoQ to 21.1%.
3. Indian revenues grew 6% YoY and excluding the COVID impact it was expected to grow 11% YoY.
4. US generics business grew 5% QoQ and the Rest of the World business grew 6% YoY.
5. FY20 EBITDA margin stood at 19.5%.
6. Excluding the impact of COVID-related disruptions, the company’s branded business would have grown by 11% during Q4 and by 10% during the year.
7. The company’s gynec portfolio grew by 12.5% vs the market growth of 6.1%.
8. The GI, gastrointestinal, portfolio registered a growth of 8.6% vs market growth of 7.9%, while the growth in the pain management portfolio was 12.4% vs market growth of 9.3%.
9. The company’s pillar brands had sales of Rs 50 Cr each and they now account for 32% of branded formulations. These pillar brands grew 9% YoY while midsized brands which account for 24% of branded formulations grew 14% YoY.
10. Zydus Wellness grew 22% YoY in revenues in Q4 and 115% YoY in FY20. This was mainly due to the completed end-to-end integration of the acquired business of Heinz India Private Limited.
11. Excluding COVID-19 impact, animal health business should have grown 16% YoY in Q4 and 5% YoY in FY20.
12. The USA accounted for 45% of consolidated sales for the company.
13. Desidustat is also being evaluated in moderate COVID patients as it increases hemoglobin oxygen-carrying capacity.
14. In February 2020, the company out-licensed the rights of Desidustat in China to CMS, China Medical Systems. This deal provides the company access to markets in Greater China, Mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan, which have a significant number of CKD patients.
15. Cadila has also received approval from DCGI to initiate a Phase I clinical trial for a new molecule, ZYBK2, and another investigational drug for treating rheumatoid arthritis.
16. The company has 7 biosimilar products under early development.
17. In Russia, the company is expecting approval of 2 key products by the 2020 end.
18. The company is expecting volumes form the USA to go up resulting in better gross margins going forward.
19. The company also saw a net debt reduction of Rs 400 Cr in Q4FY20.
20. The company is targeting a net debt reduction of Rs 800-1000 Cr in FY21.
21. The revenue contribution of mass products is 55% of India sales while specialty products contribute to 45% of sales.
22. The salesforce proportion is 60-65% to mass products and 35-40% to specialty products.
23. The company is expecting to approach the FDA for phase III trials for Saroglitazar in the USA.
24. The management maintains that R&D costs will remain at 7-8% of revenues. Half of R&D goes into U.S. formulations and the rest goes to biological vaccines and NCE.
25. The company has a good pipeline of vaccines with major peaks or good commercialization and value creation expected to happen in the year ’22, ’23.
26. The revenues from biologics for FY20 were at Rs 278 Cr and vaccine revenues were at Rs 50 Cr.
27. Capex for FY21 is expected to be around Rs 600-799 Cr and 80-85% is expected to be used for expansion of existing facilities and setting up newer facilities, mainly for the U.S. market. The rest of 10-15% will be maintenance Capex.
28. The company will be able to start selling its version of Remdesivir from July end or August.
29. The company has almost 40% market share in hydroxychloroquine in the USA. It has also done institutional sales for the drug to the Indian government of around Rs 8 Cr.
30. Capacity utilization levels for the company have remained stable at pre-COVID levels.
31. The company produced almost 20 tons of HCQ in Q1FY21.
32. The company is focussing mainly on India and emerging markets for biologics. The company expects to have 12-15 products on this division by 2023 generating sales of Rs 150-250 Cr.
33. The main reason for not pursuing biologics in the USA and the EU is that the risks and development costs in these regions for biologics are very high.
34. The management expects to have almost 50 launches in injectables in the next 3 years.

Analyst’s View

Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in both India branded business and the US generic business, both of which are the biggest revenue generators for the company. The integration of Heinz into Zydus has progressed well so far and has helped the company generate good revenues from the corresponding segment. The company has also benefitted from the rush for HCQ from COVID-19 and has done well to form an agreement to make and sell Remdesivir in India. It remains to be seen what the future holds for the pharma industry with the race to COVID-19 vaccine intensifying. The company also has FDA audits pending which can prove to be a downer if any negatives observations are made during this audit. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for every pharma investor.

Q3 2020 Updates

Financial Results & Highlights

*Includes an exceptional item of Rs 269.7 Cr for impairment of product-related intangibles.

Detailed Results

1. 1. Consolidated revenues were flat with only 1.4% YoY growth. Profit has fallen 27% YoY in Q3.
   2. 9M performance followed a similar pattern with revenues rising 10% YoY while profits fell 43.5% YoY.
   3. The EBITDA for the quarter was up 11% QoQ. The US formulations business sales rose 16% QoQ and the Indian branded formulations business grew 9.6% YoY.
   4. In the quarter, the company launched 9 new products in the US market. The company also filed 14 ANDAs bringing the current total to 386. The company also got 8 new product approvals from USFDA in the quarter.
   5. In India, the company has launched an oral anti-diabetic agent Vinglyn and Vinglyn M. The company has stated that Vinglyn is one of the most affordable brands of Vildagliptin for diabetic patients in India.
   6. The company has also filed an NDA (New Drug Application) for Saroglitazar Mg in Non-alcoholic Steatohepatitis with the Drug Controller General of India. The company also did a presentation of the same drug in NAFLD at the American Association for the study of Liver Diseases (AASLD), Boston.
   7. The company also announced the second Phase III DREAM-D trials of Desidustat, an Investigational New Drug (IND) targeted at treating anaemia in dialysis-dependent CKD patients, during the quarter.

Investor Conference Call Highlights

1. The company’s EBITDA margins expanded 50 bps QoQ to 19.1% in Q3.
2. The company’s India revenues grew 24% YoY to Rs 1370 Cr in the quarter.
3. The rest of the world’s business grew 18% YoY.
4. The management has maintained that the company’s decision to restructure the Indian formulations business into mass and specialty is bearing fruit.
5. The company’s gynaec portfolio grew 10.1% vs market growth of 7%.
6. The company’s gastrointestinal portfolio grew 9.5% vs market growth of 8.1%.
7. The company’s pain management portfolio grew 15.2% vs market growth of 9.7%.
8. The company’s cardiac portfolio grew 10% which was in line with market growth.
9. The company’s pillar brands (annual sales > Rs 50 Cr) grew 11% in the quarter.
10. Mid-sized brand (annual sales between Rs 25 Cr & Rs 50 Cr) grew 14% in the quarter.
11. Zydus Wellness grew 129% YoY with revenues at Rs 324 in Q3.
12. The animal health business grew 9.1% to Rs 140 Cr in Q3.
13. The growth in the US formulations business was driven by growth in the market share of key products, an increase in sales of Oseltamivir on account of the flu season and the launch of new products during the quarter.
14. The company is now the 4th biggest generics company in the USA in terms of prescriptions.
15. The company also launched 3 new products in Brazil and one new product in South Africa.
16. The biologics portfolio saw sales of Rs 73.7 Cr in Q3.
17. In January 2020, the company entered into a licensing agreement with the China Medical Systems Holding Limited (CMS) for the development and commercialization of Desidustat in Greater China for the treatment of anaemia and CKD patients who are not undergoing dialysis as well as those who are on dialysis.
18. The company will now aim to submit one NDA each year after 2020 to develop a portfolio of innovation-driven molecules and products.
19. The integration of Heinz into Zydus has been largely completed and the final stages of salesforce integration are ongoing.
20. The management has mentioned that Saroglitazar is going to be competing in the second-line treatment of diabetes The market for second-line treatment for diabetes is expected to be more than Rs 1000 Cr per year in India.
21. The management has mentioned that the increase in HR costs has been mainly due to a rise in costs from the Heinz acquisition.
22. The management has clarified that the company does not have significant exposure to China for its raw materials as most of its product lines are backward integrated.
23. The company has a cover of 60-90 days for its API requirements.
24. The management has stated that volumes growth has been strong for the company in the US market and the company is looking to continue filing aggressively in this market. Thus it expects the current trend of volume growth to persist in the near future.
25. The company makes at least 50% of all of its product components in house and it will continue to keep this ratio going forward.
26. The company is also looking to create a network of 10 KSM suppliers so as to reduce dependence on any single supplier.
27. The management has guided that R&D should stay around levels of 8% of revenues.
28. The net debt for the company is at Rs 6432 Cr as of the end of Q3.
29. The management has also mentioned that it expects the FDA audit to take place in Q3FY21 at the earliest.
30. The company is expecting >10% growth in the emerging markets in the coming year.
31. The management believes that the current run rate of Tamiflu at Rs 23.5 Cr in the USA is sustainable and can grow around 5-10% QoQ going forward.
32. The company has seen impressive growth in Brazil of 81% YoY and 23% QoQ in Q3.
33. The management 8-10% growth in the external API business going forward.
34. The company aims to earn margins close to 20% of the sales of Saroglitazar.
35. The management maintains that the India Business has better margins than the overall company and these margins can be expected to rise further as the company achieves good sales growth in the future.
36. The company also does not see any competition coming up in Asacol currently.
37. The company is expecting Q4 volumes for Tamiflu and Oseltamivir to rise going forward because of the flu season in February.
38. The company expects to launch 20-25 new products in FY21 without Moraiya and with Moraiya the number can easily rise to 30.
39. The management has stated that mature products have been doing well for the company and it sees more growth in these products coming from Tier 3 & 4 towns and rural areas, where the company has good penetration for its e-business division.
40. The management has stated that transdermals have gotten significantly delayed for the company. The company also has 3 valuable contraceptive products in line which it hopes to get approved next year.
41. The company is seeing a constant fall in revenues and volumes for Skinlite and is thus planning to increase penetration with a larger field force to revive growth for this product.
42. The company currently has around 150 marketed products in the USA market.
43. In the biosimilar business, the majority of the business is drawn by the company’s 11+ biosimilars in India. The next phase of growth for this business is expected to come from the out-licensing of these products in different geographies. The company also has 18 products under development in this division. The management hopes to scale up this business in the coming 2 years.

Analyst’s View

Cadila Healthcare is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in both India branded business and the US generic business, both of which are the biggest revenue generators for the company. It has also seen good performance in other segments like animal health, biosimilars, consumer products, etc. The integration of Heinz into Zydus has progressed well so far and has helped the company generate good revenues from the corresponding segment. It remains to be seen how the company will be able to maintain its above-market growth rate given the ever-intensifying competition in the generics business in the USA. The company also has FDA audits pending which can prove to be a downer if any negatives observations are made during this audit. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Cadila Healthcare is an important stock to watch out for every pharma investor.

Notes on Annual Report (FY 18-19)

Management Discussion Analysis

• The global sales of prescription pharmaceutical drugs are expected to grow in low to mid-single-digit and cross US$ 1.5 trillion by 2023. The key geographies of growth will continue to be the United States and emerging markets, which are likely to grow in mid to high single-digit over a period of next 5 years.

• In the US, the growth is likely to be driven by new product introductions and brand pricing though expiration of exclusivity and introduction of generics are likely to increase competition in the market.

• The growth in Europe is likely to remain low on account of various cost-containment measures and lower contribution from new products going forward.

• Pharmaceutical spending in China, the second-largest pharmaceutical market in the world, is also expected to slow down with an estimated compounded annual growth rate of <5% over the next 5 years.

• Indian pharmaceutical market will be one of the fastest-growing markets in the world over the next 5 years. The growth of the overall population and aging population, improvement in purchasing power and access to quality healthcare and pharmaceuticals to poor and middle-class families will drive the growth of the Indian pharmaceutical industry.

• It is expected that out of the total new product introductions over the next 5 years, around two-thirds will be specialty products, lifting the share of specialty products in the overall product portfolio.

• Growth of biosimilars in the US in the near future is likely to be a significant factor as biosimilar introductions will lead to a reduction in prices by manufacturers of innovator products, which is likely to affect the pharmaceutical market in the US.

• Emerging markets are going to become increasingly important for future growth and profitability of the pharmaceutical industry on the back of rising spending power of customers in these markets.

• Cadila invests approximately 7 to 8% of its annual revenues on innovation. More than 1400 scientists across its 8 state-of-the-art R&D facilities focus on New Chemical Entity (NCE) and New Biological Entity (NBE) research, development of biosimilars and vaccines, generic product development covering various dosage forms such as oral solids, having both immediate release and modified release pattern, injectables, topicals, transdermals and nasal products and API process development.

• Snapshot on Research and innovation

• Complex generics are the products which are either difficult to develop or difficult to manufacture and hence, have a significant entry barrier to the market. It also requires significant investment for development and dedicated manufacturing setups.

• The company has invested the resources to develop and manufacture complex generics such as modified release oral solids, complex injectable, transdermal and drug-device combinations to ensure sustainable future cash flows from this business area.

• Strategic partnerships for the development of complex generics help the company reduce product development timelines and manage associated risk and investments optimally.

• The complex injectable is going to be one of the key future growth drivers for the company’s US business.

• The company started the financial year 2018-19 with a high base of 2017-18 which was created on account of a launch of a few high-value products in the US market. On such a high base, the Company was able to grow its top line, operating profit, and net profit, albeit at a slower pace.

• US formulations business remained the largest business area for the company, accounting for around half of the consolidated revenues.

• In terms of new product approvals from the USFDA, the year gone by was similar to the previous one as the Company received 74 new products approvals during the year after receiving 77 new product approvals in 2017-18.

• In terms of introduction of new products in the US, the year 2018-19 was the most successful year for the company with 43 new product launches during the year, which is the highest number of products launched by the company in the US in a single year till date.

• On the regulatory front, Oral Solid Dosage formulations manufacturing facility located in Ahmedabad SEZ, Injectable formulations manufacturing facility of Alidac Pharmaceuticals Limited located in Ahmedabad SEZ and Biologics manufacturing facility located at the Zydus Biotech Park in Ahmedabad successfully completed the USFDA inspections during the year.

• India formulations business was impacted in the second half of the year on account of an initiative undertaken by the company to rationalize the portfolio to bring in better focus, improved margins and supply chain efficiencies.

• In the consumer wellness space, the company expanded its portfolio by acquiring Heinz India Private Limited, which has 4 main brands including 3 iconic brands viz. Glucon-D, Nycil and Complan with Glucon-D and Nycil being the market leaders in their respective categories.

Financial Performance in FY2018-19

• Total income grew 10% to Rs. 13,165 Cr. Revenues from US formulation business grew 8% to Rs 6,279 Cr. India formulation business grew 6% to Rs 3524 Cr.

• The EBITDA margin stood at 22.6% whereas net profit margin was at 14%.

• ROE came down from 23% last year to around 19% in FY19. Reasons for the same are as follows:
  • Increased competition in key products of the US business and resultant reduction in prices
  • Muted performance of India formulations business, and
  • Increase in finance costs

• The net debt-equity ratio increased from 0.44 to 0.68 in FY19 on account of funds borrowed to partially finance the acquisition of Heinz India Private Limited during the year.

• The consolidated gross block (including capital work in progress) at the end of the year was Rs. 165.4 billion, a YoY increase of Rs. 56.6 billion which was mainly due to the acquisition Heinz India Pvt. Ltd. by the subsidiary of the Company viz. Zydus Wellness.

• Excluding acquisitions, net capital expenditure including capital work in progress during the year was Rs 9,371 million which was incurred mainly for the creation of new facilities and up-gradation and capacity expansion of existing facilities.

Business Performance in FY2018-19

• The Company is now ranked seventh amongst generic companies in the USA (based on prescriptions), a rise of two positions from last year. The Company gained its market share by 0.43% compared to last year and currently has a 3.48% market share (Source: IQVIA, NPA Audit, MAT March 2019 TRx).

• The year gone by was the most successful one for the company in terms of new product launches as the Company launched 43 new products during the year, which is till this year the highest number of new products launched by the Company in a single financial year.

• Going forward, the US business is likely to continue its growth momentum on the back of new product launches and expansion of overall product offerings as the Company is planning to introduce additional topical, transdermal and injectable products in coming years. Specialty portfolio is also likely to be a significant growth driver in times to come.

• In the India formulation business, the company took two initiatives from October 2018 for increase in-field productivity, which are (1) better management of brands and (2) success of new products. For increasing the field force productivity, the Company rolled out a new sales force engagement model in around 70% of the territories during the year while the remaining territories would be covered from October 2019 onwards. For better management of the brands, the Company focused on increasing the penetration of key brands to cover untapped territories and allocating more resources to promote them.

• The Company is the fourth-largest pharmaceutical company in India with 4.1% market share and is ranked amongst the top three players in the promoted covered market of gynecology, respiratory, pain management, cardiovascular, dermatology and gastrointestinal therapeutic areas.

• Therapeutic area-wise breakup and Company’s ranking in the same area is shown below:

• During the year, Cadila’s subsidiary company, Zydus Wellness, successfully completed the acquisition of Heinz India Private Limited (Heinz India) and thereby expanded the wellness portfolio to strengthen the core business of Food and Nutrition. The acquired business has 4 brands out of which 3 are iconic brands viz. Glucon-D, Nycil and Complan with Glucon-D and Nycil are market leaders in their respective categories. The acquisition also includes two large manufacturing facilities of Heinz India in Aligarh and Sitarganj and teams devoted to operations, research, sales, marketing and support.

• As per A.C. Nielsen MAT March ’19 report, Zydus Wellness continued its leadership position by maintaining 93.8% of artificial sweetener category with the help of the Sugar-Free Brand. EverYuth maintained its leadership position in the peel-off mask and scrub categories with market shares of 84.9% and 32.4% respectively. The acquired brands viz. Nycil and Glucon-D also maintained their leadership positions in their respective categories of prickly heat powder and glucose powder with market shares of 32.1% and 59.5% respectively.

• The Company is one of the leading animal healthcare players in India, having a portfolio of drugs, vaccines and feed supplements for livestock, poultry and companion animals. The year gone by was an encouraging one for the Company as the overall market in India grew more than 10%. Overall, the Company’s animal health business posted sales of Rs. 511 Cr during the year, up 15% YoY.

• The Company’s business in the emerging markets of Asia Pacific, Africa, Middle East and Latin America posted sales of Rs.831 Cr during the year, up 9%.

Analyst’s View

Cadila Healthcare is a long-standing company with a proven track record of more than two decades in the pharmaceutical space. It has created a lot of wealth for the shareholders in the same period.  The recent USFDA inspection and Official Actions Initiated (OAI), we believe, is a short term set-back and the company would be able to resolve in due course.

The company is trading at only 14 times trailing earnings. Given the growth in earnings expected for the next couple of years, the current valuation seems very reasonable with limited downside. Cadila also holds 67% stake in its listed FMCG subsidiary Zydus Wellness which is growing strong and has a long runway to growth. Zydus Wellness has recently acquired Heinz India’s business comprising leading brands like Complan, Glucon D, Nycil and Sampriti Ghee brands along with its two large manufacturing facilities. While the valuation of  Zydus Wellness appears to be stretched at about 45 times trailing earnings, investment in Cadila Healthcare’s stock is a good way to get exposure of the growing business of  Zydus Wellness at a reasonable valuation.

Disclaimer

This is not a piece of investment advice. Please read our terms and conditions.