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.


Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 1887.4 1725.1 9.41% 2090.7 -9.72% 5348.9 5390.4 -0.77%
PBT 321.8 431.5 -25.42% 713 -54.87% 1128.6 1590 -29.02%
PAT 281.6 363.3 -22.49% 627.9 -55.15% 988.2 1340 -26.25%


Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 3658.2 3608.9 1.37% 3393.5 7.80% 10570.6 9595.5 10.16%
PBT 457.1 671.7 -31.95% 122.4 273.45% 973.4* 1776.2 -45.20%
PAT 373.9 510.7 -26.79% 107.2 248.79% 784.7 1388.7 -43.49%

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

Detailed Results

    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.



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