BUY Natco Pharma - Expanding HepC portfolio, ANDA approvals to drive growth: AnandRathi Institutional Research

Natco Pharma - Expanding HepC portfolio, ANDA approvals to drive growth; Buy with a target of Rs 602

For a business update (and growth drivers) we recently met Natco's management. We returned quite sanguine because of the good product pipeline for the US, higher traction in HepC and the oncology portfolio. Its exploration of new therapies would raise domestic-formulations growth.

Healthy product pipeline for US: For the next 2-3 years the US pipeline is interesting. We expect launches in H2 FY17 for g-Tamiflu, g-Entocort, and for g-Doxil, g-Bosentan and g-Vidaza in FY18. To develop complex generics Natco spends 6-8% of sales on R&D.

Final approval for g-Copaxone (20mg) awaited. For ten months now no major query has arisen from the US FDA regarding g-Copaxone (20mg). The outcome of the IPR review for 40mg is expected in Aug'16. Also, a 30-month stay on litigation for 40mg will expire in Feb'17. We await further clarity.

Expect new therapies in the medium term in domestic formulation. Volume growth has helped the HepC portfolio. The approval process for the Velpatasvir combination (a superior product, it addresses all genotypes) is ongoing; hence, some cannibalization could ensue post launch. Any loss in sales would be offset by higher volumes on better diagnosis. Volumes and higher MR yield would drive oncology sales. Besides Hep-C and oncology products, Natco is developing products in new therapies. This would aid sales growth in the next 2-3 years.

Synergies of existing products' RoW launch, another key growth driver. Natco has filed products in 40 countries, with import permits/product approvals in 12 countries. Product launches would lead to better sales and profit in the next 3-4 years.

Valuation: At Rs.595 now, the stock trades at 29.4x FY17e EPS (Rs.20.2) and 25.4x FY18e EPS (Rs.23.4). We retain a Buy with a target of Rs.602, based on a sum-of-parts valuation. Risks. Currency fluctuations, slower execution in domestic formulations and delays in approvals for para-IV products.

Shares of NATCO PHARMA LTD. was last trading in BSE at Rs.629.05 as compared to the previous close of Rs. 622.55. The total number of shares traded during the day was 61911 in over 2920 trades.

The stock hit an intraday high of Rs. 641.2 and intraday low of 622. The net turnover during the day was Rs. 39153121.

Source : Equity Bulls

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