NATCO Pharma's Q4FY18 results (Outperformer) - Inline quarter; non-US markets to gain traction
Q4FY18 result highlights
- Natco reported sales of Rs7.7b (+33%/37% yoy/qoq) vs est of Rs7.5b driven by higher profit share of Rs4.33bn (vs Rs2.54bn in Q3) from products like gCopaxone, gTamiflu along with gDoxil and gFosrenol.
- Natco reported EBITDA of Rs3.8bn (+59%/34% yoy/qoq) inline with our est of Rs3.8bn. EBITDA margin came in lower at 49.9% (vs 51% in Q3) vs est of 51.1%. GMs stood better at 84% (vs est 79.3%) due to higher profit share component.
- Employee expenses came higher at Rs1.1bn vs est of 812mn as it included bonus of Rs200mn.
- Natco reported PAT of Rs3bn (+70%/38% yoy/qoq) vs est of Rs3.07bn. FY18 PAT was Rs6.96bn in line with guidance
- Natco has given base FY19 revenue and PAT growth guidance of 8-10% driven by gCopaxone and gTamiflu. For FY20, mgt guided that higher contribution from Brazil, Canada and India markets will likely make up for the profit erosion in gCopaxone and gTamiflu.
Key positives: Higher GMs
Key negatives: Higher SG&A cost and tax rate
Impact on financials: We have reduced our FY19 earnings est by 3% and increased our FY20 est by 12%
Valuations & view
With a series of positive developments including the much awaited approvals / launches for gCopaxone 20mg and well as 40mg, blockbuster gTamiflu FTF launch, approval for niche drugs like Doxil and continued strength in domestic business Natco has had a dream run over last few quarters. With proven R&D capabilities post successful launch of multiple complex generics and a much stronger balance sheet, Natco has now created a strong platform to make relatively aggressive investments (vs the past) to move into the next growth orbit. Along with gCopaxone, anticipated launches of gNexavar and gRevlimid accompanied with the scale-up in India and RoW markets will keep up the earnings momentum over the next 3-5 years. The forthcoming stepped-up investment phase will enable the company to create new medium to long growth drivers. Maintain Outperform.
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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