Can you please give a guide line regarding NATCO PHARMA,

Well, Natco is an outstanding company. It has a proven track record for growth and profitability. It also has a competent management. However, in the case of Pharma companies like Natco, much depends on what is in their product pipeline. I understand that they profited quite well from their generic equivalent for 'Copaxone'. They are currently exploiting opportunities for Hepatitis by marketing drugs called Sovaldi/Sofosbuvir + Ledipasvir (Harvoni). I am not very clear of what the opportunities and risks are in the business. It will require detailed study. The stock is, however, no longer cheap. It is quoting at a P/E of 49x. So, much of the optimism due to the expected out-performance is already priced into the stock.

 

Natco Pharma seeks next level of growth

Natco Pharma plans to raise about Rs 350 crore from qualified institutional buyers at Rs 2,130 a share. The proceeds are to be used for a formulation facility coming at Visakhapatnam, expansions at the tablet manufacturing facility, and API (active pharmaceutical ingredient) facilities. The funds may also be used to pay a part of its debt, according to Natco’s company secretary M Adinarayana. The strategy is to raise funds without stretching the balance sheet, therefore, the equity route. While there will be a 2.5 per cent equity dilution, the expansions will aid growth, therefore, stock prices have remained stable after the announcement on September 18. The stock closed at Rs 2,280 on Wednesday.

The company has been growing 21 per cent annually over the past seven years. Not only revenues, but margins too have expanded from 10 per cent to about 24 per cent during the period. The company now is a dominant firm and enjoys decent market share in generic oncology space in the domestic market and has a strong pipeline of niche products in the US, as it builds a strong portfolio. This is keeping analysts and the Street positive on the company.

Sumit Singhania at Nirmal Bang Institutional Equities says the research house is more excited about Natco’s strong US drug pipeline and does not see any risk to its earnings over four to five years. Singhania continues to remain optimistic on the company’s research and development-driven US drug pipeline and believes it has enough levers to keep growth momentum intact over the medium term, even beyond multiple sclerosis drug Copaxone. The Street is awaiting the launch of the generic equivalent of Teva’s multi-billion dollar drug, Copaxone. Though Sandoz has been the first to launch the generic version of the drug, analysts believe Natco can still grab a good chunk of the market share if it becomes the second generic firm to receive US approval and launches at a significant discount. There are other products lined up that can drive earnings. Analysts at Antique Stock Broking say US sales are set to see massive growth with the launch of high-value products like Copaxone, Tamiflu, Nuvigil, Entocort EC, Vidaza, Tracleer and Prevacid OTC. They feel Copaxone and Tamiflu will add Rs 62 to FY17 earnings per share. In India, apart from the oncology portfolio, hepatitis C drug Sovaldi is boosting sales. Having clocked Rs 37 crore in the first quarter, the drug is likely to contribute more than Rs 150 crore to FY16 revenues.

https://www.business-standard.com/a...eeks-next-level-of-growth-115092300990_1.html

 

Natco Pharma

More than a Copaxone story

Natco is a dual play on its leadership position in the domestic oncology market and a robust US product pipeline, backed by strong R&D capabilities. While the stock has re-rated on the likely launch of generic Copaxone, we note that the remaining pipeline is equally robust though underappreciated. Unlike the street, we think the company can sustain its growth momentum over the next 2-3 years and further gain from the Sovaldi franchise. BUY with a Mar’17 TP of Rs 3,005.

 Robust US pipeline to drive growth: Natco’s US pipeline is a mix of blockbuster drugs (Copaxone 20mg/40mg, Revlimid) and limited competition products (Tamiflu, Tracleer, Nexavar, Doxil, Vidaza). As the pipeline unfolds over the next few years, we expect significant value unlocking from FY16 onwards.

 Sovaldi launch to materially influence earnings growth: The launch of Hepatitis-C drug Sovaldi can significantly shore up earnings given the huge pool of 100mn patients in 91 licenced countries. So far, Natco has launched the drug in India and Nepal (~15mn patients) and we expect the company to garner ~Rs 1bn/Rs 1.5bn in FY16/FY17 sales. ROW market launch (not factored in) would lead to further earnings upsides.

 Expect 25% EPS CAGR over FY15-FY18 in base business: Led by a steady domestic oncology business (~30% market share, 18% CAGR), a ramp-up in exports and the Sovaldi launch/ramp-up in additional emerging markets, we expect Natco’s base business to record a 25% EPS CAGR over FY15-FY18. Monetisation of the US pipeline would further aid base business revenues.

 Mar’17 TP of Rs 3,005; BUY: We recommend BUY on the stock with a Mar’17 TP of Rs 3,005, valuing the base business at Rs 2,568 (18x FY18E EPS) and the para IV pipeline at a one-time NPV of Rs 437 (see next page).

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