This Healthcare Stock Is Attracting Attention, What’s Cooking?

Healthcare stocks have been on a roll since last year, when Covid-19 first broke out. Many stocks soared and most of them today are quoting at their 52-week highs. However, there are some of them that may still have the potential to rally form these levels.

Cadila Healthcare: A solid portfolio

Cadila Healthcare has a very good portfolio comprising active pharmaceutical ingredients, wellness related and also related to animal healthcare.

Recently, broking firm Motilal Oswal has put a "buy" on the stock and sees a pretty decent upside on the stock from current levels.

Covid -vaccine trails

Cadila Healthcare has been conducting trail runs on a three-dose regimen for Covid-19 and the company is targetting affordable pricing.

"The trial includes 1,000 children (12-18 years) and hence could be one of the first to be approved for children. It is also working out a plan to test its vaccine for children aged 5-12 years. CDH would seek emergency use approval for its COVID-19 vaccine in next 2 weeks and would initially begin a vaccine supply rate of 10m doses/month which is expected to increase to 30-40m after 4-6 months, with partnerships/ capacity expansion," Motilal Oswal has said in a report.

Business in the US to do well

Cadila Healthcare has been able to maintain its market share in the markets across the United States, despite lower offtake of its key product g-Asacol and expects sales to normalize from 2QFY22 onwards.

In fact, the company has 30 abbreviated new drug application in FY21 while new approvals/filings stood at 35/22, Motilal Oswal has stated. The pace of launches are expected to only improve going forward.

Valuation remain reasonable

Motilal Oswal has said that it remains positive on the stock of Cadila Healthcare on account of a host of reasons. This includes, superior execution in DF segment, a favourable demand for COVID-19 products, innovative/Complex Generic pipeline, and reducing financial leverage.

"We expect 15% earnings compounded annual growth rate on the back of 7% sales growth in the United States (vis-a-vis 3% YoY growth in FY21), 18% sales compounded in DF (considering muted growth in FY21), 18% sales compounded annual sales growth in emerging markets supported by 180 basis points margin expansion, and reduced financial leverage. Vaccine-related upside is yet to be captured in the earnings. Maintain Buy with target price of Rs 740 (26x FY22E earnings).

Conclusion

It is pertinent to note that pharma stocks like the entire markets are not too far away from their 52-week highs, including Cadila Healthcare. Therefore, caution maybe exercised before investing in stocks now, as the indices are at fresh lifetime peaks.

We advocate very staggered investing and that too with a long term view. Also, investing on declines maybe a better strategy for investors.

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