Cadila Healthcare reported its first quarter results yesterday which look like this:

Cadila Healthcare Q1 – 2017 Q4 – 2016 Q1 – 2016 % change Q-Q % change Y-Y
Total Income 2,287.10 2449.10 2,382.60 -6.61% -4%
EBIT 454.90 527.20 532.70 -13.71% -14.60%
EBIT Margin 19.89% 21.53% 22.36 -1.64 Bpt -2.47 Bpt
Net Profits 344.10 392.10 447 -12.24% -23.02%

 

While writing this blog, I am pretty sure many people will be confused what to do with this business. Should you stay invested or pull out your investments from the company? The report card of first quarter displays big ‘F’ (FAIL) and still stock is up by 7% today! If you are following our blog then you have just seen this business being added in top 10 stocks to do further research by us this week.

So there is lot of pressure on us to come out with our view a little more in detail and share our analysis. We rated this business as ‘A1’ quality on its March 2016 financials. So definitely the quality of its Balance sheet and performance of the business is trustworthy. There are 32 analysts who follow this business very closely and track its earnings almost every week. They all are expecting Cadila Healthcare to report profits in range of Rs 1,511 – Rs 2,015 crore for 2017.

Looking at the first quarter results, it looks they will pretty much report very close to lower band of that earnings forecast. But after reading through the commentary by management and looking for at least 15 products to be launched in the next three quarters, they might come close to report their earnings at the higher band. Hope is a big and risky word in investment and we avoid taking decisions on guess-work.

But is it still worth to buy Cadila at this price? If we punch in analysts forecast earnings into our calculation for its intrinsic value, the spectrum comes at Rs 184 – Rs 332 per share for 2017. Today’s market price is pointing towards profits at Rs 2,060 crore for 2017. Well, we haven’t studied more in detail about its new product launches and what revenues and earnings to expect from them, but they are very close to analyst’s earnings expectation. From here on, they will have to report their EBIT at average of Rs 550 crore for next three quarters. We are working to figure out if that can be achievable or not.

If you are following this business closely, then we will appreciate if you can share your findings with us and rest of the bloggers.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.