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Cadila reports in line Q2FY22 numbers driven by India and wellness but US weakness persists

What’s Buzzing: 

Cadila Healthcare’s Q2FY22 revenues were in line with I-direct estimates with better margins and profitability.

Context:

Revenues was flat at Rs.3784.8 crore (I-direct estimate: Rs.3710.8 crore) mainly due to 11.6% growth in domestic formulations to Rs.1213 crore (I-direct estimate: Rs.1212 crore). Domestic business was driven by strong volume growth and new products launched during last few quarters. However, US sales declined 12.3% YoY to Rs.1498 crore (I-direct estimate: Rs.1529.8 crore) amid pricing pressure and reduction in volumes of Mesalamine products. Wellness segment grew 12.5% YoY to Rs.377 crore (I-direct estimate: Rs.368.7 crore). EBITDA margins were steady at 22.7% (I-direct estimate: 20.9%) mainly due to lower other expenditure. Subsequently, EBITDA de-grew 0.3% YoY to Rs.860.8 crore (I-direct estimate: Rs.775 crore). 

Our perspective:

On the US front, the company's plan to venture into complex injectables is likely to provide meaningful traction from FY23-24 onwards. Similarly, addition of biosimilars (like Trastuzumab, Adalimumab, Pegfilgrastim, Bevacizumab, etc.) for Emerging markets (like LatAm, MENA markets and South East Asia) is expected to provide growth impetus, going ahead. The wellness segment performance hinges upon the company’s marketing & distribution prowess besides effective product positioning. India formulations business, after recent restructuring, is likely to stabilise. Both wellness, India formulations are likely to deliver steady growth in FY22. Overall, post the significant unlocking of Animal Health segment, other lingering issues such as Moraiya warning letter resolution, US base business performance in tough times are some important aspects to watch.