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Research
Natco Pharma - JM Financial
Posted On : 2012-06-11 09:59:39( TIMEZONE : IST )
Risk-reward remains favourable
- Strong operating performance in FY12: Natco posted 15% sales growth for FY12 at Rs.5.2bn. During FY11, the company had divested one retail pharmacy store in US (sales of $10mn). Excl the US retail sales, underlying sales were stronger at 27%. EBITDA at Rs.763mn was up 25% YoY while margins at 14.7% were higher 120bps YoY. The margin increase was driven by better product mix (lower US retail). Adjusted net profit at Rs.596mn was up 2.8% YoY primarily due to higher taxes (at 26.1%). Domestic oncology sales at Rs.1.5bn grew by 22% YoY driven by both volume and price increase.
- Base business earnings to be steady: We expect base business earnings to witness 9% CAGR for FY12-14 with FY13/14 EPS at Rs.20/Rs.22.9. We expect FY13/14 sales growth to be 11%/13% with EBITDA margins at c.20%.
- US opportunities to unfold in FY13; Copaxone remains the key value driver: We estimate NPV value/share of Rs.275 for the 4 US opportunities. The earliest of the US launches will likely be Lansoprazole (Rx/OTC; Rs.11/share) expected in FY13. Lanthanum launch is likely in FY14 (Rs.13/share). The district court decision in the Copaxone litigation is expected near-term. Our NPV value of Rs.160/share assumes 75% probability of launch reflecting the regulatory approval risk. We see a tentative approval for Natco's filing as a key trigger which will raise the probability to 100% (independent of the litigation outcome; full value of Rs.213/share). Our estimates for Copaxone are conservative and assume a 4-5 player market - earlier launch can provide upside to JMFe. Lenalidomide (at 75% probability) accounts for an NPV value of Rs.91/share - although timelines are stretched.
- Maintain BUY; raise Mar'13 TP to Rs.458 (from Rs.375): We raise our FY13E EPS by 13% to Rs.20.0. We introduce FY14 EPS of Rs.22.9. Our Mar'13 TP of Rs.458 is based on 8x FY14 base EPS and Rs.275 for the US opportunities. Given litigation/regulatory actions expected in the near term, we see the risk-reward as favourable for the stock. Maintain BUY. Risks to our call are delay in approvals and negative outcome in litigation.
