Shares of Cadila Healthcare, which had seen a lacklustre trend for almost a year until a fortnight back, surged by more than 27 per cent on Tuesday, before closing the day 13.6 per cent up at Rs 312.50. The street sentiment has improved lately as the company is expected to benefit from anti-malaria drug Hydroxychloroquine (HCQ) supplies to the USA, for its potential use in Covid-19 treatment.
The company's spokesperson indicated that HCQ's monthly production has already been ramped from 3 metric tonne (MT) to 20-30 MT (about 100 million tablets plus) to meet the requirements. Also, if the need arises, Cadila will be scaling it up further to about 40 to 50 MT in the coming months. Positively, the company also has backward integration, and hence is well placed for the ramp up.
What's more, apart from improving US outlook, the prospects of the company’s domestic business too remain strong. The domestic market is growing at a health pace of about 10 per cent and Cadila receives earns about 40 per cent of its revenues from India. The company had undertaken channel restructuring, which is now behind and strong sales momentum has resumed. Analysts at Nirmal Bang Institutional Equities say that Cadila Healthcare's performance in March 2020 quarter should be aided by growth in domestic business and a seasonally stronger wellness business. Though the growth in wellness business may be lower than normal given the circumstances, its prospects too remain strong.
The consumer wellness business, which contributes about 13 per cent to Cadila’s revenue and is housed under a separately listed company, Zydus Wellness, however is expected to see traction from strong brands such as Sugar Free, Nutralite and Everyuth along with Complan, Glucon-D, Nycil.
Analysts expect the business to deliver double-digit revenue growth with some of its key brands (like Complan) showing signs of turn around. With liquidity limited in the Zydus Wellness (Cadila hold 63.5 per cent stake) counter, CLSA says that Cadila Healthcare is the preferred way for institutional investors to play this improving consumer business even as the gains from the steady growth of its core pharma segment will continue.
Notably, analysts feel that the street is not assigning much value for wellness business in Cadila Healthcare's overall valuations. Assigning a 20 per cent holding company discount to wellness business, CLSA still sees more upside for the stock, which trades at about 20 times FY21 estimated earnings.