Cadila's Q4 results were broadly in line with estimates as subdued performance in the US (-6% QoQ) was offset by healthy growth across markets. The growth visibility for India business remains strong as core portfolio (ex-Covid) has witnessed an improved trajectory, driven by volumes. The potential launch of ZyCov-D (DNA-based vaccine for Covid) is likely to lift the near-term outlook. We value the vaccine opportunity at NPV of INR40/share. R&D investments in vaccines, biosimilars, and NCE/NBEs provide potential upside in terms of monetisation opportunities. We revise our EPS estimate by 8%/7% for FY22/23E to factor in higher growth in India and divestment of animal health business.

In line quarter: Revenue grew by 3% YoY to INR38.5bn as strong growth in India (+15% YoY), EMs (+46% YoY), and Consumer Wellness (+22% YoY, double-digit growth in all brands, volume growth, low base) offset subdued performance in the US (-6% QoQ, weak flu, pricing pressure). EBITDA margin inched up to 22.2% (+16bps YoY, +97bps QoQ), as decline in gross margin (-137bps YoY, -86bps QoQ, product mix) was offset by lower R&D (- 159bps YoY, -320bps QoQ) and other expenses (-144bps YoY, -142bps QoQ, cost savings). Adj. PAT at INR7.5bn was buoyed by DTA of INR3.3bn.

Strong outlook for India business: Cadila's India business grew by 15% YoY vs. 6% for the IPM in Q4, driven by strong volume growth. The specialty portfolio (40%) significantly outperformed the market. The contribution of Covid was negligible in Q4 but it is likely to be significant in Q1FY22. We factor in 13% CAGR for India business for the next two years.

ZyCov-D adds an NPV of INR40/share: Cadila's ZyCov-D (DNA-based vaccine) is undergoing phase III trials. Basis the interim events data which is awaited in 10-15 days, the company is expected to file for EUA. Cadila currently has a capacity of 10mn doses per month. This will be augmented via (a) contract manufacturing and (b) de-bottlenecking of existing capacity, which could potentially increase the supplies to 25-30mn doses per month in the next few months. We assume sale of ~300-360mn doses over FY22-23 at~INR500 (guided for affordable pricing) with EBITDA margins of ~30-35% to arrive at an NPV of INR40/share for this opportunity.

Key call takeaways: (a) Saroglitazar - Phase IIb/III trial for PBC indication might start in Aug, to be filed by end FY23/early FY24, expected launch not before CY25; (b) Trastuzumab - launch could add INR300mn to topline (potential INR500mn); (c) US - injectables business can be scaled up to USD300mn in the medium term; aims for 40+ launches in the US p.a., transdermals approval contingent on Moraiya resolution; (d) net debt - INR 35bn, net debt/EBITDA - 1.06x, R&D - 8% of sales, EBITDA margin - 22%+.