Analyst Corner: Retain ‘hold’ on Cadila with revised TP of Rs 570

ZyCoV-D filed in India for EUA: CDH has filed for emergency use authorisation (EUA) for ZyCoV-D, its plasmid DNA vaccine for Covid-19 (the world’s first plasmid DNA based Covid-19 vaccine), in India on 1 July 2021. Its filing is based on interim results from Phase III clinical trials in over 28,000 volunteers. CDH has also tested the vaccine in 1,000 volunteers in the 12-18 years’ age group. It has reported primary efficacy of 66.6% in the interim analysis (the efficacy rates of the other three vaccines available in India are 70.42% for Covishield, 81% for Covaxin and 91.6% for Sputnik V; see Exhibit 1). ZyCoV-D will be administered as a three-dose, intradermal vaccine using a needle-free system. CDH has also evaluated the vaccine in a two-dose regimen and may explore approval for the same later. We expect ZyCoV-D to receive approval in the next few weeks.

Scale-up in supply will be key: CDH had earlier indicated its vaccine would be priced similar to other Covid-19 vaccines in India (it is yet to disclose pricing). A relatively unknown platform based on plasmid DNA, and a three-dose regimen could present some hurdles for wide acceptance of ZyCoV-D. However, in view of supply shortage for Covid-19 vaccines in India, we expect it to see reasonable pick-up, especially in government channels. A key focus for Cadila is a step-up in supplies of its vaccine to realise any notable gains. It plans to manufacture 100-120m doses annually (~10m doses per month). We assume all supplies in FY22/23 will be utilised in the India market (although it aims to supply vaccines to exports markets too, there is no visibility on exports at present).

Retain ‘Hold’, revise TP to Rs 570 (from Rs 525); vaccine benefits largely in price: In our view, CDH’s stock price rise of 44.7% in the last three months (vs +4.6% for the Sensex) largely prices in the benefits of the Covid-19 vaccine. We update our model for FY21 reported numbers and also adjust our estimates per the current outlook, which leads to 9/10% increases in our FY22-23e EPS estimates. We also revise the per share value for the ZyCoV-D vaccine to Rs 30 (from Rs 35) as per current norms for vaccines procurements and pricing data for COVID-19 vaccines in India. All these changes lead to a fair value TP of Rs 570 (from Rs 525). Beyond near-term benefits from ZyCoV-D and other COVID-19 related products, we believe Cadila needs to show sustainability in base India sales growth and turnaround of its Heinz portfolio. While we take a positive view on its R&D efforts for long-term growth, we believe the realisation of these opportunities is a distant possibility and dependent on execution. We retain our ‘Hold’ rating.

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