Gladiator Stocks - Cadila Healthcare - ICICI Securities

Strategy

Buy Cadila Healthcare in the range of Rs. 430.00-445.00 for target price of Rs. 520.00 with a stop loss of Rs. 385.00. Time Frame: Six months

Technical View

The pharma sector has undergone healthy consolidation over past two months, after witnessing a structural turnaround off March 2020 lows, which has paved the way for next leg of up move in the sector

Within pharma space, Cadila Healthcare has relatively outperformed over past two months and currently it has registered a faster pace of retracement as it retraced past three week's decline (Rs. 448-404) in just a single session, signaling rejuvenation of upward momentum augurs well for acceleration of upward momentum.

Structurally, the stock has been observing elongated up moves followed by slower pace of retracement since March lows, indicating robust price structure. In the process, price has been sustaining well above its 50 days EMA, indicating elevated buying demand

We expect, the stock to endure its relative outperformance against pharma index and accelerate upward momentum towards Rs. 520 in coming months as it is confluence of price parity of Sept-Oct rally (Rs. 358-448), projected from November low of Rs. 404 at Rs. 506 coincided with September 2017 high of Rs. 519

Fundamental View

Cadila is one of the old generation family owned pedigree companies which, after establishing a strong base in domestic formulations, shifted focus to the exports markets.

US (44% of FY20 revenues) grew at ~12% CAGR in FY16-20 backed by aggressive filings, product launches. Launch of authorised generics also contributed to overall growth. US pipeline (cumulative) comprises 390+ filed ANDAs, 311 having final approvals. However, resurfacing of cGMP issues at Moraiya, imminent slowdown in base are main near term headwinds. We expect US sales to grow at ~7% CAGR in FY20-23E to Rs. 7718 crore.

With a market share of 4.2%, Cadila is the fifth largest player in the domestic formulations market, as per AIOCD September 2020. The acute: chronic: sub-chronic ratio for the company is 53:32:15. Domestic formulation grew at a CAGR of 5.7% in FY16-20 backed by new launches and acquisition of Biochem. Recently, the company optically initiated restructuring of business by rationalising slow moving SKUs. We expect Indian formulations to grow at a CAGR of ~11% in FY20-23E to Rs. 5021 crore.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_CadilaHealthcare_Nov20.pdf

Shares of CADILA HEALTHCARE LTD. was last trading in BSE at Rs.437.45 as compared to the previous close of Rs. 410.15. The total number of shares traded during the day was 750634 in over 13204 trades.

The stock hit an intraday high of Rs. 451.15 and intraday low of 418.55. The net turnover during the day was Rs. 331571482.

Source : Equity Bulls

Keywords