NATCO Pharma's Q3FY18 results (Outperformer) - Strong quarter; Q4 to be better
Q3FY18 result highlights
- Natco reported sales of Rs5.6b (down 17% yoy / +32% qoq) below our est of Rs5.8b. Domestic formulation revenues stood lower at Rs1.65bn (-24% yoy). API grew +60% yoy to Rs810m.
- Natco reported EBITDA of Rs2.9bn (+10%/135% yoy/qoq) vs est of Rs2.7bn. EBITDA margin came at 51% vs est of 46.4%.
- GMs stood significantly higher at 88.3% (vs 73.5% in Q2FY18) ahead of est 76% driven by higher profit share of Rs2.5bn accruing from gTamiflu and gCopaxone during the quarter.
- Employee exp stood higher at 788mn (+41%yoy) vs est of 644mn.
- Driven by better than expected operational performance Natco reported highest ever PAT of Rs2.2bn (+11% yoy) vs est of Rs1.9bn
- Natco has increased its FY18 revenue / PAT guidance to Rs21bn / Rs 7bn to account to for the launch of gCopaxone and better than expected traction in gTamiflu sales.
Key positives: Higher GMs, lower tax rate
Key negatives: Higher employee cost
Impact on financials: We have increased our earnings estimate for FY18 by 10% and reduced FY19 by 4%.
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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