Natco Pharma's Q4FY19 results (Outperformer) - Soft quarter; Strong growth outlook
Q4FY19 result highlights
- Consol revs came at Rs4.6bn vs est Rs5.2bn; yoy nos are not comparable due to significant share of gTamiflu sales in the base
- Exports sales came at Rs1.44bn vs est Rs1.99bn; Q3 was Rs2.57bn – Q3 had significantly higher profit share from gTamiflu in Q3
- Domestic sales grew +19% yoy to Rs1.88bn vs est Rs1.75bn due to strong growth in oncology sales. API was Rs700m vs est Rs900m;
- EBITDA came at Rs1.48bn vs est Rs1.9bn; Q3 was Rs2bn. GMs were strong but profits were impacted due to negative operating leverage.
- Mgt indicated that gTamiflu season has been fairly soft this year with significant competition; Partner has taken $5.5m inventory write-off and we est Natco’s share will be ~$2mn or so. Also, as per mgt, gCopaxone profit share hasn’t ramped up yet in line with Mylan’s current mkt share – the same is likely to reflect from Q1 onwards. DRL’s guidance for delay in its gCopaxone launch to FY21 will act as a tailwind for Natco / Mylan for FY20 / FY21
- FY20 guidance – Rev growth of 7-8% and PAT growth 8-10%; FY19 profits to double in FY22 based on visibility of settlements / launches
Key positives: Strong domestic sales
Key negatives: Lower exports
Impact on financials: Increase FY20 /21 earnings by 5%/5.4%
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 during FY19. However, mgt guidance of 8-10% profits growth with optimistic outlook for FY21 /22 is indicative of the fact that earnings have bottomed. 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 gCopaxone scale-up will drive FY20 earnings, gNexavar and gRevlimid launches accompanied with the scale-up in India and RoW markets will keep up the earnings momentum over the next several years. Maintain Outperformer with a TP of Rs888.​
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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