NATCO Pharma's Q3FY19 results (Outperformer) - Steady quarter; lowers FY19 profit guidance
Q3FY19 result highlights
- Consol Revs came at Rs5.56bn vs est Rs5.1bn; Q2 was Rs5.43bn. Domestic revs came at Rs1.64bn vs est Rs2bn; flat yoy; Q2 was Rs1.94bn.
- Formulation exports (incl profit share) was Rs2.57bn – flat yoy; est Rs2.4bn. Key contributor likely to be profit share on key drugs including gCopaxone, gTamiflu, gDoxil etc
- API was Rs990m vs est Rs700m; Foreign subs revs were Rs250m
- EBITDA came at Rs2.08bn vs est Rs1.8bn; Q2 was Rs2.2bn. GMs as well as overheads were broadly in line; beat driven by higher revenues
- Other inc Rs233m(est Rs400m); PAT Rs1.59bn – in line;9m PAT Rs5.23bn
- Mgt cited that the soft flu season is hurting gTamiflu sales. Therefore, there is uncertainty on Q4 contribution from gTamilflu. Mkt share traction in gCopaxone finally seems to be picking up now. Overall, mgt has lowered FY19 PAT guidance to Rs6.4-6.5bn excluding Q4 gTamiflu sales. The initial guidance was 5-10% growth over FY18 PAT of Rs7bn.
- For FY20, mgt guided that higher contribution from Brazil, Canada and India markets will likely make up for the profit erosion in gTamiflu.
Key positives: Strong export revenue
Key negatives: Lower domestic sales
Impact on financials: We reduce our FY19/20/21 earnings estimates by 13%/12% / 8% respectively to account for lower US sales of gCopaxone / gTamiflu and lower HepC sales in domestic market.
Valuations & view
Post multiple consecutive positive quarters, Natco’s profitability growth has a hit temporary soft patch with the lower than expected sales in gTamiflu as well gCopaxone. Natco mgt continues to pursue its unconventional growth strategies (agrochemical foray, gErnesto launch in India) to create new medium term growth engines. Recent big ticket FTF on gImbruvica tablets further underlines Natco’s capability to generate unexpected winners. These initiatives add comfort on management’s ability to create new and meaningful growth drivers in the coming years. While earnings growth may be muted over next few quarters, gNexavar and gRevlimid launches accompanied with the scale-up in India and RoW markets will keep up the earnings momentum over the next 3-5 years. Maintain Outperformer with a TP of Rs877
Natco Pharma Limited is a pharmaceutical company. The Company is engaged in developing, manufacturing and marketing finished dosage formulations (FDF) and active pharmaceutical ingredients (APIs). The Company's segments include active pharmaceuticals ingredient, finished dosage formulations, job works, pharmacy and others. The Company's product categories include Domestic Formulations, International Formulations, API's and Blockbusters. The Company's products include Alphalan, Bandrone, Bendit, Clokeran, Lenalid, Thioplan, Anastronat, Capnat, Fulvenat, Kabanat, Natdox-LP, Rapact, Temonat, X-Trant, Glatimer, Hepcinat, Natdac, Natzold, Tigi, Alprazolam, Chloroquine Phosphate, Lansoprazole, Letrozole, Granisetron, Rizatriptan IR, Imatinib, Salmeterol Xinafoate, Sertraline Form I, Ibandronate Sodium Monohydrate, Pantoprazole Sodium Sesquihydrate, Ondansetron Hydrochloride (Injectable Grade), Daclatasvir and Glatiramer Acetate. The Company manufactures over 20 products under contract.
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