Citigroup has reiterated OVERWEIGHT on Cadila Healthcare and Glenmark Pharmaceuticals with a BUY recommendation.
Cadila continues to make progress in its effort to consolidate its position across key markets of US, Brazil, France & India. The adverse impact of generic competition for Protonix in the US on its JV with Nycomed is reflected in financials & valuations. Excluding a mark to market forex loss of Rs47m incurred in 4Q, FY08 results were in-line with expectations. Sales growth of 26%, EBIDTA margin expansion of 53bps & recurring PAT growth of 23% are impressive given that Zydus Nycomed witnessed a 20% & 28% YoY decline in sales & net income respectively.
Hospira JV to become operational in 2HFY09; Cadila is awaiting regulatory inspection around September’08; JV with Nycomed expanded to include manufacturing of 17 APIs (including pantoprazole) – new plant to be set up in Mumbai & revenues to commence in FY10; 5th IND filed in drug discovery research; Cadila has no plans to spin this business out unlike some of its other peers in the industry.
Citi expects Cadilla Healthcare to report an EPS of Rs 26.91 for FY09 and recommends a BUY with a target price of Rs 384.
Glenmark has further strengthened its R&D pipeline, made good progress in key markets & completed its reorganisation process. US sales, in particular, doing very well on the back of shared exclusivity in Trileptal. Glenmark also thrived in markets such as India, CIS & LatAm on the back of new launches. It also received R&D income of US$60m, up 93% YoY, as part of its deals with Forest & Eli Lilly.
8 NCEs & 5 NBEs in the pipeline of which 3 are in P-II; expects to have 8 in the clinic, at least 5 in P-II and at least 4 partnered out by end FY09; business reorganization complete; intends to list Glenmark Generics down the line; plans to acquire a US front end for the speciality business over the next 12-18 months.
Citi expects Glenmark to report an EPS of Rs 30.66 for FY09 and hence recommends a BUY with a target price of Rs 770.