Cadila Healthcare (Cadila) is India’s leading vertically integrated pharmaceutical company. Cadila is one of the old generation family owned companies which, after establishing a strong base in domestic formulations, shifted focus to exports markets. The company was established in 1952 and restructured in 1995 post a family split. With its presence across the value chain, it manufactures finished dosage forms, active pharmaceutical ingredients, animal healthcare products and wellness products. The company currently owns a pipeline of 20 biosimilars and four novel biologics. Similarly, it owns 13 vaccines in different stages of development.
Cadila (CDH) followed up its strong 2QFY18 numbers with another good performance in 3QFY18. The top-line came in at Rs 32.6bn, up 41% YoY. This was largely driven by sales of gLialda under exclusivity and gTamiflu under limited competition. EBITDA was Rs 8.4bn, up 108% YoY. The margin was 25.8%, up 831bps YoY primarily driven by operating leverage and sales of limited competition products in the US. PAT was Rs 5.4bn, up ~68% YoY.
Driven by gLialda exclusivity in the US and new product launches, we expect EBITDA margin to expand to 24.1%/25.1% in FY18/19E. Launches like gAsacol HD, gPrevacid ODT, gToprol XL and gExelon (transdermal patch) are likely to compensate significantly for any drop-off in sales of gLialda. Further, successful resolution of the Moraiya and Baddi plants bodes well for new drug launches as Moraiya accounted for ~60 of ~180 ANDAs pending approval including some critical ones such as Toprol XL, Prevacid & Asacol HD. Notably, the company expects ~80 ANDA approvals until FY19, of which, around 50% are expected from the Moraiya facility alone. Post the manufacturing facility clearance, the management targets to launch around 40 products in the US. We expect US sales to grow at 33% CAGR over FY17-19E.
On the domestic front, CDH has recently launched 12 new products in India. Though it recovered 80% of lost sales post GST-led disruptions, overall inventory days are still below the pre-GST level. Notably, the company has received marketing authorisation from DCGI for typhoid vaccine. Other than these two segments, there are almost seven other revenue heads spread across both the domestic and exports sub-groups. Segments like wellness, JV & others continue to witness diminished performance. However, with planned forays into biosimilars and vaccines, we may see priorities shifting towards these high investment/niche segments.
We project revenue/PAT to grow at a CAGR of 20%/26% over FY17-19E driven by new drug launches in the US and normalisation of Indian business post GST led disruption. We increase our EPS estimates by 5.8%/3.1% for FY18E/FY19E to mainly factor in strong expansion in EBITDA margin going ahead. With strong growth prospects backed by healthy product pipeline and focus on Para IV filings & speciality products and expected pick-up in launch momentum from the Moraiya facility, we maintain ‘BUY’ rating on the stock with a revised TP of Rs. 506 (Rs. 491 earlier) based on 22x FY19PE.
Analyst: Abhishek Kumar Das, Dion Global Solutions., INH100002771
General Disclosure and Disclaimers: Cadila Healthcare Ltd. https://goo.gl/oSJDAr
Vinati Organics Ltd (VOL) enjoys global leadership in two specialty chemicals, with market share of 65% in IBB and 45% in ATBS. IBB is primarily used in Pharmaceuticals as a raw material for the manufacture of ibuprofen and ATBS is a specialty monomer used a co-monomer in numerous polymerization processes. VOL’s next leg of growth will be driven by PTBBA, butylated phenols and PAP (para amino phenol) from FY21.
VOL’s IBB segment is witnessing strong demand in overseas markets. BASF, the largest manufacturer of ibuprofen in the world, announced that it plans to build a new world-scale plant to produce ibuprofen in Ludwigshafen, Germany. Apart from this, BASF is also expanding ibuprofen capacity at its existing production site in Bishop, Texas. Capacity at Texas unit is expected to be streamlined in early 2018 and in the new plant in 2021. VOL, being one of the preferred suppliers of IBB to BASF, is expected to be the natural beneficiary of this expansion. To cope with increased demand for IBB, VOL will expand its IBB capacity from 16,000tn to 25,000tn in FY18. Recently, VOL’s main competitor (global market share ~15%-20%) in ATBS has shut down its plant. VOL, being the global leader with 45% market share, is expected to capture this gap in supply of ATBS. Additionally, VOL has planned capex of ~Rs1,500mn-Rs2,000mn for butylated phenols. Sales from butylated phenols are expected to start from 2HFY19. At peak utilisation level, sales from butylated phenols can touch ~Rs3,000mn. Currently, there are very few small players manufacturing butylated phenols in India. As of now, almost 100% of PAP (~22,000tn of demand in India) is met through imports from China. Capex required for this project will be ~Rs5,000mn and sales can touch~Rs7,000mn at peak capacity utilisation.
Revenue grew by 13% YoY in Q3FY18 led by higher contribution from ATBS, HPMTBE, new products and others. The off-take in IBB segment was impacted by prolonged shut down of plants at one of its client side impacted the top-line growth. However, ATBS witnessed strong volume growth as one of VOL competitor has exited from ATBS business. Going forward to FY19E, the de-bottlenecking of capacity of VOL‟s client is expected to boost the off-take in IBB segment. ATBS will continue to drive overall revenue growth & profitability led by strong demand and incremental volumes led by exit of competitor from business. We factor revenue to grow 23% CAGR over FY18E- FY20E.
Gross margins for Q3FY18 declined by 760bps YoY to 46.8% due higher raw material cost and lower share of IBB in the sales mix. While the EBITDA margins declined by 660bps YoY to 26.8%. Given impact on margins in Q3, we lower EBITDA margin estimates by 190bps &50bps for FY18E & FY19E. We factor EBITDA to grow at a healthy 27% CAGR over FY18E-20E.
The long term outlook has significantly improved by launch of new products and CAPEX initiated for introduction of new products. We roll our valuation to FY20E and value VOL atP/E 24x (25x earlier on FY19E).Given healthy earnings outlook, we upgrade to Accumulate from Reduce rating with a target price of Rs942.
Analyst: Anil R, Geojit Financial Services Ltd., INZ000104737
General Disclosure and Disclaimers: Vinati Organics Ltd. https://goo.gl/kSBshr
Minda Industries Limited is a supplier of automotive solutions to original equipment manufacturers. The Company offers a range of products across various verticals of auto components, such as switching systems, acoustic systems and alloy wheels, among others. Its business divisions include Lighting Systems Division, Switch & Handle Bar Systems Division, Acoustics Systems Division, and Sensors Actuators and Controllers Division. It also has business divisions, which are engaged in production of batteries for two wheelers, fuel cap and compressed natural gas (CNG)/liquid petroleum gas (LPG) kits. It is also engaged in the business of blow molding components and aluminum die casting. Its product portfolio includes alloy wheel, and brake hoses and fuel hoses. It manufactures switching system and handle bar solutions for two/three-wheelers in India. It develops electronic products, including start stop sensors, electronic accelerator pedal module (EAPM) and head lamp leveling motors.
Q3FY18 revenue grew by 26%YoY led by positive effect of consolidation of group companies & superior product mix, while standalone business grew by 9%YoY. EBITDA margin expanded by 160bps due to superior product mix & operating leverage, Adj.PAT grew by 27%YoY. Despite GST transition and BS–IV emission change industry registered a growth of 9%YoY in production for the H1FY18. We expect the industry to close by double digit growth for the full year.
During Q3FY18 switching business grew by14%YoY whereas lighting and horns grew by 13% & 30% mainly due to inorganic growth. MIL has robust capex plan of Rs 375cr for consolidation exercise and Greenfields expansion in FY19. Capex for the lighting plant in Chennai to cater primarily to Renault Nissan has been approved and is expecting the tune of 55cr. Mexico plant for Clarton horns is started operational. We expect the consolidated Revenue to grow at 19% CAGR over FY17-20E led by higher contribution by core segments and incremental revenue from Alloy wheel, infotainments and storage battery business which is at the trial phase.
Alloy wheel production has jumped from 85k/month in July to 100-110k in Aug- Sep. Capacity currently stands at 120k/m and set to increase on account of robust demand. The penetration in the PV segment is currently at ~24% which is expected to increase to 45%in next 3 to 5 years. It has invested Rs2bn in first phase in Gujarat plant and presently supplying to OEM’s like Toyota, Renault & Honda. Plant for the recently signed JV with Taiwanese TTE to be start operational.
On the back of strong earnings growth of 18%CAGR and ROE of ~24% by FY19E, we remain confident about the long term prospects of MI, but due to recent run up in stock price we see limited upside at current level. We marginally upgrade our PAT estimate for F19E by 2% respectively, to factor in higher operating leverage. We rollover our valuation to FY20E EPS at a P/E 28x with a revised target price of Rs1237 and recommend Accumulate rating.
Analyst: Saji John, Geojit Financial Services Ltd., INZ000104737
General Disclosure and Disclaimers: Minda Industries Ltd. https://goo.gl/zxvZi8
NBCC (India) Ltd (NBCC) is a Navaratna Enterprise under Ministry of Urban Development. Its business verticals include: Project management consultancy (PMC), Engineering Procurement & Construction (EPC) and real estate business.
Q3FY18 revenue de-grew by 7% YoY at Rs1,322cr mainly on account of delay in execution of PMC projects & real estate business. The PMC projects constitute ~91%of the total revenue which de-grew by 6.3%, real estate declined by 90% while EPC business grew marginally by 1%. Revenue growth in PMC business was lower largely due to subdued execution of large redevelopment projects owing to time lag for preparatory works. Management pointed that Rs10,000cr worth large redevelopment projects are tendered during the last six months and ground level execution has started and expect significant upswing in revenue in FY19. On the other hand, execution of another 15,000cr worth orders are likely to start in CY18 which will propel revenue booking in the coming years. We expect top-line to register 26% CAGR over FY17-20E.
NBCC has a current order book backlog of Rs800bn (including re-development project of 3 colonies in Delhi worth Rs250bn). Order book consists of 92% PMC including large re-development project. EPC & Real estate forms 5% &3% of the order book. NBCC is at sweet spot considering its huge order book, limited competition and expertise in executing large projects. Big projects like Pragati Maithan (Rs2500cr), Irrigation project in Maharashtra (Rs1,000cr), redevelopment of Nauroji Nagar (Rs2,500cr) started with an estimated execution period of 24months.
The EBITDA margins declined by 12bps YoY to 5.2% due to 35% increase in employee cost (led by 7th pay commission).Delay in execution and weak operational performance impacted the earnings growth during this quarter. Therefore, we reduced FY18E/19E earnings estimate by 12%/26%, we expect earnings to grow at 24% CAGR over FY17-20E owing to robust order book & pick-up in execution.
Mammoth order book provides strong visibility for next 5yrs. For FY19, revenue growth is expected to be strong as most of the redevelopment projects would contribute meaningfully. Further NBCC had received good response in real estate sale at Nauroji Nagar and has sold over Rs2000cr of properties in the 9MFY18. Considering the asset light PMC segment, less leveraged balance sheet and robust opportunities in the pipeline, NBCC will command premium valuation in the construction space. We value NBCC’s core business at a P/E of 27x on FY20E and book value of land parcel at Rs19/share to arrive at SOTP target price of Rs218 and assign Buy rating.
Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd., INZ000104737
General Disclosure and Disclaimers: NBCC (India) Ltd. https://goo.gl/mXkoGx