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Anand Rathi
Natco Pharma (Buy)
CMP: ₹651
Target: ₹747
Natco’s Q2 FY20 domestic formulations revenue slid 37 per cent y-o-y to ₹120 crore, mainly due to the drag in Hep C sales and in its domestic oncology range, on pricing pressure in its two big brands. However, it is focusing on niche molecules with high entry barriers, aiming at 6-8 launches yearly. It recently launched Eribulin in oncology and expects value unlocking in the near future with existing molecules and others in the pipeline. We expect around 5 per cent revenue CAGR over FY19-21.
Its market share in gCopaxone is around 30-35 per cent, and gCopaxone and gDoxil revenue was stable q-o-q. gCopaxone would drive Natco’s FY20 earnings till December 2019 on competitors’ delayed entry into generics. Post-FY20, its focus on Canada and Brazil with limited-competition launches would drive revenue growth.
Post-Q2 FY20, considering the lower-than-expected domestic formulations revenue we cut our FY20e/FY21e revenue 7 per cent/11 per cent; and factoring in the lower gross margin, we cut our EBITDA estimates 15 per cent and 19 per cent respectively and PAT 14.8 per cent and 19 per cent.
Valuation: We retain our ‘Buy’ call with a lower target of ₹729, based on a sum-of-parts calculation.
Risks: Currency fluctuations, delay in approvals.
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