Cadila cedes ground over competition
investors are cashing out their bets on the pharma firm’s Covid-19 vaccine
innovation and competition are healthy facets of any industry. but that doesn’t necessarily hold true for incumbent market leaders or those with an established foothold. that is precisely the reason Cadila Healthcare's stock slid 3% on an intra-day basis on February 22, when news came out that Biological E had received regulatory approval for its Covid-19 vaccine to be administered to Indian young adults (ages 12 to 18). at ~Rs 360/share, it marked a 23% drop in Cadila’s stock price from ~Rs 477/share at the turn of the year.
is it now an attractive proposition for investors?
three sides to the coin
as per census 2021, approximately 22.5 crore Indians fall within the age bracket of 10 to 19 years, and assuming approximately 66% of them to be within the age group of 12 to 18, it presents an overall opportunity of 15 crore * 2 = 30 crore doses of the Covid-19 vaccine.
while Cadila earlier only had Bharat Biotech as competition, now it also has to contend with Biological E. for the sake of argument, if the vaccine doses are equally distributed between the companies, Cadila’s share drops 33% from 15 crore doses to 10 crore doses. that is a significant reduction which investors have to account for in their expectations for Cadila’s revenue.
on the slide
another factor that may be souring investors on Cadila and the overall pharma segment is its outperformance since the outbreak of the pandemic. with the demand for healthcare in response, the incomes of pharma companies naturally saw a bump and they were among the best performing on the markets. now their revenues are slowly trending back downwards and thus their stocks as well. Cadila’s Q3 FY22 (October to December) report showed a 5.1% decline in consolidated net profit over the year-ago period at Rs 500.4 crore vs Rs 527.2 crore. its revenue was also down 3.7% at Rs 3,655 crore vs Rs 3,795.6 crore over the same comparison.
with the global markets in a bearish mood, it’s stocks that offer the most value or promise the most growth relative to their price that will be in vogue. at the moment, neither Cadila nor most pharma stocks appear to fit in either category.