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Natco Pharma (NATPHA) : Robust Numbers Outweigh Lansoprazole Delay
Natco Pharma (NATPHA) : Robust Numbers Outweigh Lansoprazole Delay
Key Financials
(| crore) Revenues EBITDA Net Profit FY11 444.9 86.8 53.5 506.8 105.7 59.6
PRICE TARGET ....................................................................... Changed from | 378 to | 452 EPS (FY13E) ......................................................................... Changed from | 25.6 to | 28.4 EPS (FY14E) ......................................................................... Changed from | 32.5 to | 36.2 RATING ....................................................................................... Changed from Hold to Buy
Valuation summary
FY11 EPS (|) PE (x) Target PE(x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) 17.2 19.8 23.2 16.3 3.5 15.2 12.3 FY12 19.1 17.8 20.8 13.7 2.6 12.7 12.3 FY13E 28.4 12.0 14.0 9.1 2.2 16.2 17.6 FY14E 36.2 9.4 11.0 7.7 1.9 17.5 18.1
Stock data
Market Capitalisation Debt (FY12) Cash (FY12) EV 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 1224 crore | 221 crore | 37 crore | 1409 crore 437/195 | 31.1 crore | 10 10.6 7.5
Price movement
6,400 6,100 5,800 5,500 5,200 4,900 4,600 4,300 4,000 Nov-11 Feb-12 May-12 Aug-12 Nifty (L.H.S) Price (R.H.S) 450 400 350 300 250 200 150 Nov-12
Analysts name
Siddhant Khandekar siddhant.khandekar@icicisecurities.com Krishna Kiran Konduri krishna.konduri@icicisecurities.com
Quarterly Highlights
Exhibit 2: Trends in revenues & EBITDA
Revenues grew 42.4% YoY to | 180.3 crore,, far higher than our estimates of | 148 crore driven by strong growth in overall exports. After a subdued Q1FY13, | 29.8 crore while export API leapfrogged by 97% to | 55.3 crore. As the company maintained the policy of keeping hedges open, the favourable currency also supported the growth export formulations grew 233% YoY on a lower base to
30.1
34.1
25.8
29.0
43.5
Q1FY13 EBITDA
Q2FY13
25 20 15 10 5 0 %
22.6
24.1
12.0
11.6
Q2FY12
Q3FY12
Q4FY12
Q2FY13
EBITDA Margins
[
Exhibit 4: Net profit grows 32% YoY due to one -off | 6 crore
25
The company booked | 6.18 crore during the quarter on SMS Pharma. As per the order from High court of Andhra Pradesh, the company has deposited the same in the court. This one-time expense restricted growth in net profit to 31.7% to | 21 crore (even then higher than our estimates of | 16.1 crore)
20 | crore 15 10 5 0
21.0 17.1
Q2FY12
Q3FY12
Q1FY13
Q2FY13
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Sales from the domestic oncology business declined 14% to | 35.5 crore due to lack of new product launches. The companys version of Nexavar has clocked sales of ~ | 6 crore during the quarter and | 12 crore for the first half
( | crore)
The API business grew 73% to | 63.6 crore mainly on the back of robust growth of 97% in the export API business. After an 18% de-growth in API exports in Q1FY13, the company has posted strong growth
Q2FY12
Q3FY12
Q4FY12 Oncology
Q1FY13
Q2FY13
23.2
IPAB rejects Bayer plea on Nexavar, Natco can continue the marketing During the quarter, the Intellectual Property Appellate Board (IPAB) rejected a petition by Bayer seeking a stay on an order of the Controller of Patents, granting compulsory licence to Natco for cancer drug Nexavar. Note that in March the Controller of Patents granted the first ever compulsory licence to Natco to make sorofenib tosylate, a generic version of Bayers high-priced anti-cancer drug Nexavar. Bayer obtained a patent in India in 2008 for Nexavar, which cost | 2.8 lakh for a pack of 120 tablets, equivalent to a months dosage. Natco was told to sell the pack at | 8,800. As per the licence conditions, Natco is supposed to pay a 6% royalty to Bayer from the sales of sorofenib tosylate.
| crore
36.7
36.9
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Exhibit 9: Assumptions
(| crore) API Domestic YoY Growth (%) Exports YoY Growth (%) Total API YoY Growth (%) Formulation Oncology YoY Growth (%) Exports YoY Growth (%) US Retail YoY Growth (%) Other formulation revenues YoY Growth (%) Total Formulation YoY Growth (%) Total consolidated sales 121.2 -2.1 50.5 113.0 111.5 -22.0 60.0 -2.2 343.1 -2.3 449.4 148.4 22.5 65.6 29.9 82.1 -26.4 74.4 24.1 370.5 8.0 518.4 175.5 18.2 120.4 83.6 90.9 10.8 81.0 8.9 467.8 26.3 660.4 201.8 15.0 146.6 21.7 90.9 0.0 97.2 20.0 536.5 14.7 765.1 22.9 68.8 83.4 10.7 106.3 19.5 31.0 35.2 117.0 40.3 148.0 39.2 36.9 19.1 155.7 33.0 192.5 30.1 39.8 8.0 188.8 21.3 228.6 18.7 FY11 FY12 FY13E FY14E
Valuation
We expect revenues, EBITDA and net profit to grow at a CAGR of 23%, 30% and 38%, respectively, in FY12-14E. We now value the base business at | 399 i.e. 11x (10x earlier) FY14E EPS of | 36.2. Even though a marginal player, Natco remains a focused niche player in the oncology segment and the Nexavar victory will only strengthen its forte. Note that Nexavar still remains just a small part of the portfolio. Our SoTP based target price now stands at | 452 (| 399 for base business + | 53.3 for Para IV/ FTF). We upgrade the stock to BUY despite a delay in Lansoprazole launch.
Exhibit 10: Valuation table
Base Business (11x FY14E EPS of | 36.2) Para IV Opportunities Lenalidomide capsules Glatiramer Acetate Injection Lanthanum Carbonate chewable tablets Oseltamivir Phosphate Capsules Target Price
[
Key risks- 1) Delay in product approvals from the USFDA and (2) intensifying price war in the domestic oncology market.
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Price
[ [
12.1x
Exhibit 12: One year forward PE of company vs. BSE Healthcare Index
35 30 25 20 x 15 10 5 0 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Natco Pharma Jul-09 Mar-10 Nov-10 BSE Healthcare Index Jul-11 35% Discount
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Financial summary
Profit and loss statement
(Year-end March) / (| crore) Total operating Income Growth (%) Raw Material Expenses Employee Expenses Other expenses Total Operating Expenditure EBITDA Growth(%) Depreciation Interest Other Income PBT Taxation PAT before MI Minority Interest Less: Prior Period Items PAT Growth(%) EPS(|) FY11 455.9 -0.2 177.8 64.3 127.0 369.1 86.8 -6.6 15.9 14.2 8.4 65.1 13.2 51.9 -1.6 0.0 53.5 9.9 17.2 FY12 520.1 14.1 203.1 80.1 131.3 414.4 105.7 21.8 15.9 23.0 12.8 79.5 21.1 58.5 -1.1 0.0 59.6 11.4 19.1 FY13E 690.0 32.7 256.2 115.1 163.2 534.5 155.5 47.2 19.1 21.3 4.7 113.6 26.8 86.8 -1.7 0.0 88.5 48.4 28.4 FY14E 795.1 15.2 286.2 127.2 202.8 616.2 178.9 15.0 24.1 19.7 8.0 143.1 30.3 112.8 0.0 0.0 112.8 27.5 36.2
Balance sheet
(Year-end March) / (| crore) Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Long Term Provisions Total Liabilities Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Net Intangibles Investments Inventory Debtors Loans and Advances Cash Other Current Assets Total Current Assets Creditors Provisions Other Current Liabilities Total Current Liabilities Net Current Assets LT L & A & Other Non CA Application of Funds FY11 28.1 324.3 352.4 221.2 25.1 1.1 8.67 608.5 354.0 100.7 253.3 76.0 329.3 16.9 62.6 102.2 71.0 40.4 32.3 0.1 246.1 76.6 0.9 21.34 98.9 147.3 52.5 608.5 FY12 31.2 440.0 471.2 260.0 28.9 0.9 9.8 770.7 417.3 116.4 300.9 164.4 465.3 16.2 62.5 110.4 94.7 70.1 36.6 1.1 312.9 92.4 0.7 39.01 132.0 180.9 45.8 770.7 FY13E 31.2 515.8 546.9 230.0 32.9 0.1 12.8 822.6 621.7 134.9 486.8 30.0 516.8 25.6 62.5 142.9 108.6 101.6 37.1 1.5 391.8 162.9 21.2 44.2 228.2 163.6 54.1 822.6 FY14E 31.2 614.0 645.1 210.0 36.9 1.0 15.8 908.7 681.7 158.2 523.5 20.0 543.5 34.8 62.5 171.5 136.3 82.0 56.8 1.6 448.1 167.7 21.8 52.2 241.7 206.4 61.5 908.7
Key ratios
(Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio
[
FY11 17.2 22.3 113.1 2.0 10.4 19.0 14.6 11.7 73.7 58.2 62.8 15.2 12.3 10.8 19.8 16.3 3.2 1.3 2.8 2.5 0.6 2.5 2.2
FY12 19.1 24.2 151.3 3.0 11.8 20.3 15.7 11.5 76.6 68.2 66.5 12.7 12.3 9.6 17.8 13.7 2.9 1.1 2.4 2.5 0.6 2.4 2.1
FY13E 28.4 34.5 175.6 3.5 11.9 22.5 17.2 12.8 70.0 60.0 90.0 16.2 17.6 14.2 12.0 9.1 2.1 1.2 1.9 1.5 0.4 1.7 1.6
FY14E 36.2 43.9 207.1 4.0 18.2 22.5 18.7 14.2 75.0 65.0 80.0 17.5 18.1 15.4 9.4 7.7 1.8 1.2 1.6 1.2 0.3 1.9 1.6
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NA 451.2
33.4 229.9
May-12
Jun-12
Aug-12
Sep-12
Nov-12
Target Price
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RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey
Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com
pankaj.pandey@icicisecurities.com
ANALYST CERTIFICATION
We /I, Siddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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