Multi Baggers

Natco Pharma Ltd.

Company Overview:

Natco Pharma Ltd. is a Hyderabad based Indian company engaged in manufacturing Active Pharmaceutical Ingredients (API). The company's segments include bulk chemicals, finished dosage formulations, retail pharmacy and job work charges. The Company’s products in the oncology segment include Desifer, Veenat, Bendit, Bortenat, Lenalid and Clokeran. It has facilitirrd in AP, Tamil Nadu and Uttarakhand.  In November 2012, the company acquired 51 percent interest of NATCO Organics Ltd. Exports account for 50 percent of turnover and consist of both formulations and APIs. Exports are made to North and South Americas, Europe, Middle East and S-E Asia.

Financial Analysis:

For Q1FY15, NATCO PHARMA reported a strong set of numbers with Total Revenue of Rs.182.36Crs as against Rs.148.32Crs during the same quarter last year, up 26 percent YoY and 12.13 percent QoQ. EBITDA at Rs.61.44Crs increased 26.44 percent YoY from Rs.48.59Crs in Q1FY14. PAT robustly grew to Rs.36.41Crs, as against Rs.22.74Crs same quarter last year reflecting a 54 percent jump. The growth was driven by increase in sales of both bulk chemicals and formulations. Operating Profit Margin (OPM) of 33.85 percent and Net Profit Margin (NPM) of 20.06 percent were significantly stronger than last quarter's OPM & NPM of 30.04 percent and 17.19 percent respectively. In FY 13-14, the Total Income amounted to Rs 622 crs and EBIDTA to Rs 160 crs and the Net Profit to Rs 110 crs.

Positives:

We like the stock because of the following reasons -

1. It is the largest oncology generic player in India.

2. It is focusing on key high value complex drugs and has been successful in getting the regulatory filings done in US.

3. It has product based tie-ups for taking the product to different markets with all generic majors in the world. Thus the risk of litigation and costs are mitigated. It mostly works on profit sharing model.

4. It is a R&D focused company with good scientists working with them. Also, It has a low attrition.

Valuations:

Natco Pharma is trading at the P/E of 33xFY14 & 27xFY16. At the Quarterly EPS of Rs.10.12, Natco Pharma is witnessing robust growth from Rs.7.26 last quarter and Rs.6.94 same quarter last year. It is expected to continue recording a consistent 30 percent plus CAGR for the coming years. On the capability front, Natco Pharma clearly stands out from its peers and has some good products filings planned for the next few years. Trading at the CMP of Rs.1080, we recommend buy with the Target price of Rs.1404.