Natco Pharma's Q3FY20 results (Outperformer) - Soft quarter
Q3FY20 result highlights
- Consol revs came at Rs4.8bn vs est Rs5bn; 13% decline yoy. Yoy numbers are not comparable due to significant share of gTamiflu sales in the base
- Exports sales came at Rs1.9bn below est of Rs2.2bn; Q2 was Rs2.25bn – mgt cited higher material supplies in Q2 and expects higher gTamiflu profit share in Q4
- Domestic formulations sharply stood at Rs1.5bn vs est Rs1.35bn (7% decline) due to lower HepC and CnD sales. Oncology sales flat yoy
- EBITDA came at Rs1.3bn vs est Rs1.5bn; Q2 was Rs1.3bn. EBITDAM at 26.7% vs est 29.5% due to higher other expenses (includes one-time provision of Rs150m related to doubtful receivables and Rs60m of higher R&D cost). GMs were higher at 81% vs est 78%; Q2 – 75.5%.
- Reported PAT stood at Rs1bn vs est of Rs1.1bn. Tax rate came in lower at 18.9% vs est of 23%
- Agrochem – Filed for regulatory approval of first big ticket product in India; likely launch in FY21 subject to approval / litigation outcome
- Natco will miss its initial FY20 growth guidance due to lower growth in India and Canada / Brazil. Mgt cited that guidance had assumed settlement of gRevlimid in Canada – an event which didn’t crystallize.
Impact on financials: We have reduced FY20/FY21 estimates. We have not built in launch / settlement of gRevlimid in Canada which could offer meaningful upsides. We introduce FY22 earnings assuming gRevlimid launch in the US in Mar’22 as per settlement.
Valuations & view
Natco’s 9M performance has sharply lagged its initial FY20E guidance due to weakness in India as well as Canada / Brazil and underlines the uncertainties inherent in its unconventional business model. Despite this miss, Natco mgt continues to pursue its unconventional growth strategies to create new medium term growth engines. Recent big ticket agrochemical filing, niche CnD launches in India and FTF on gImbruvica tablets in US underline 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. Maintain Outperformer with a TP of Rs786. Tentative approval for gRevlimid in US along with clarity on gRevlimid litigation driven launch / settlement in Canada will be key monitorable over next few quarters.
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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