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Buy Cadila HealthCare – ASK Raymond James

January 26, 2007

ASK Raymond James has maintained its BUY recommendation on Cadila Healthcare Ltd with a price target of Rs 450.

Cadila Healthcare posted 15% YoY growth in consolidated profits (adjusted) at Rs426 mn in 3Q FY07, lower than its expectation of Rs519 mn. Profits have been primarily impacted by 85% YoY increase in R&D cost at Rs294 mn, higher A&P spent on consumer healthcare business and lower sales in Altana JV. A 25% YoY growth in consolidated sales is primarily driven by US and French generics markets, which grew 147% at Rs928 mn (20% of sales).

The management indicated 20% growth over the next few years driven by generics markets and pick up in APIs. The stock trades at 20.0x FY07E earnings and 15.2x FY08E earnings and trades at 14.4x FY07E EV/EBITDA and 11.3x FY08E EV/EBITDA. ASKRJ, maintain Buy rating on the stock with a target price of Rs450 (14x FY08E EV/EBITDA).

Sales and EPS expectations for FY2008 are – Rs 2140 crore and Rs 23.6 respectively.

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