Natco Pharma - Base stable, US launches remain key; Buy - Anand Rathi

Key takeaways from management meet

Steady growth to continue in base business. Natco Pharma's management is confident of achieving 15-20% revenue growth in its base business. The growth would be largely driven by strong traction in its API business, the growing base of export formulations and its stable domestic oncology portfolio. The API business grew a strong 51% during FY13 and we expect a 17.5% revenue CAGR over FY13-15 in this segment.

Exiting the domestic branded generic (non-oncology) business. Keen competition is leading the company to move out of the domestic nononcology branded generics business. Hence, its revenue dropped 35% in FY13. We expect it to slip further. The company will focus on its domestic oncology segment, its core competence, in which it leads with a ~30% share in the domestic generic market.

US launches are key triggers. Natco's healthy pipeline of niche products in the US market would attract huge cash flows. It has made 31 ANDA filings, of which eight have been approved. Of the pending ANDAs, it has four FTF (first-to-file) opportunities. Copaxone is not an FTF but is the largest opportunity that would come up in FY15-16 depending upon the outcome of the hearing in Sep'13.

Our take. We have a positive view of the company considering its healthy pipeline of niche products in he US market and a steady growth momentum in its base business. Here, we expect it to register an 11.1% revenue and an 18% adj. PAT CAGRs over FY13-15. The lower revenue growth estimate would arise due to its quitting its domestic branded generic business. The stock trades at 14.7x FY14e and 12.4x FY15e base business earnings. We maintain our Buy call, with a price target of Rs. 540 based on 12x Sep'14e base business earnings and Rs. 147 per share for its para IV pipeline in the US.

Risks. Currency fluctuations, delay in approval of para IV products.

Source : Equity Bulls

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