 "US launches and India recovery key for Cadila")
The Cadila Healthcare stock fell about 10 per cent in morning trade on news the US Food and Drug Administration (FDA) was concerned about the manufacturing process at a company facility, as well as reports of a downgrade by some brokerages, following the announcement of June quarter results on Wednesday.
While all processes at the Cadila facility at Moriya, Gujarat, aren't in violation of norms, a Reuters report suggests the US regulatory body has raised concern over the process of manufacturing at least one product. While there were reports the US FDA issued a Form 483, with 12 observations, the company clarified there were no manufacturing violations, adding this was only a product-specific review, which it was in the process of responding to.
As a result, the stock recovered some of its losses and ended the day down four per cent at Rs 1,118.5 on BSE.
Moderate performance of the Indian business (accounting for about 35 per cent of revenue) in the June quarter also weighed on sentiment. Growth was muted due to the impact of the new pricing policy, as well as reorganisation of the sales force.
Adequate and timely approvals in the US will be crucial for Cadila. The 85 per cent year-on-year growth in the US market (a third of the revenue), driven by four new product launches and higher base business sales, helped the company record a 25 per cent jump in overall revenue in the June quarter. The company plans to file 40 abbreviated new drug applications and expects about 15 approvals in FY15, which is expected to drive its revenue. The good performance in the US market also helped the company improve its June quarter Ebitda margin by 228 basis points year-on-year.
Given the company is able to raise prices, analysts expect some pick-up in India in the coming quarters. Unless growth in the US and India businesses is in line with expectations, the upsides for the stock from current levels remain capped.
While all processes at the Cadila facility at Moriya, Gujarat, aren't in violation of norms, a Reuters report suggests the US regulatory body has raised concern over the process of manufacturing at least one product. While there were reports the US FDA issued a Form 483, with 12 observations, the company clarified there were no manufacturing violations, adding this was only a product-specific review, which it was in the process of responding to.
As a result, the stock recovered some of its losses and ended the day down four per cent at Rs 1,118.5 on BSE.
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What weighed on the stock, however, were a couple of brokerage downgrades that said medium-term upsides had already been priced in. Citi Research analysts say while the US business should improve in time, valuations are high, and it could take a while for the company's financials to match those of peers. Despite steady growth and low spending on research and development, the earnings before interest, tax, depreciation and amortisation (Ebitda) margin, at 18 per cent, is lower than peers. The Cadila stock, which gained 38 per cent since February this year and four per cent on Wednesday, is trading at 18 times its FY16 estimates. While Citi has a target of Rs 1,115, analysts at ICICI Securities and Sharekhan have downgraded the stock to 'reduce' or 'hold'.
Moderate performance of the Indian business (accounting for about 35 per cent of revenue) in the June quarter also weighed on sentiment. Growth was muted due to the impact of the new pricing policy, as well as reorganisation of the sales force.
Adequate and timely approvals in the US will be crucial for Cadila. The 85 per cent year-on-year growth in the US market (a third of the revenue), driven by four new product launches and higher base business sales, helped the company record a 25 per cent jump in overall revenue in the June quarter. The company plans to file 40 abbreviated new drug applications and expects about 15 approvals in FY15, which is expected to drive its revenue. The good performance in the US market also helped the company improve its June quarter Ebitda margin by 228 basis points year-on-year.
Given the company is able to raise prices, analysts expect some pick-up in India in the coming quarters. Unless growth in the US and India businesses is in line with expectations, the upsides for the stock from current levels remain capped.